Lots of possibilities with the tranny, including both under and overfilling.
If fluid level is right I would tighten the modulator pressure and quicken the shifts hoping to keep your shift overlap problem to a minimum. A car could be driven like that for years (I've seen them) without further problems.
The problem of "Flairing" between shifts has to do with the fluid dynamics of disengaging one element (here a servo driven band) and engaging the next device (in both 3rd and 4th the action is a clutch pack filling and engaging). The fluid pressure, the spring rates of valves, the sealing capacity of old lip seals, the chamber capacities of both the elements (gets larger as the devices wear) and the their accumulators, the spring rates of the accumulators, and the filling oriface diameter all play a part in assuring that one device's engagement process is initiated sufficiently before the others release as to not leave a gap. All these activities take time. The idea is to do this in symphony.
If finessing the modulator and control pressure doesn't get it, one last ditch effort can be made if rebuilding is inconvenient. Change your fluid and use an additive designed to clean varnish and soften seals. Either of these conditions can be the real reason for the flair. A little seal leakage can delay the clutch filling enough that the disengagement of the band occurs first and a flair occurs.
As to fuel pump checking, the actual test involves installing a gauge ahead of the pressure regulator and disconnecting the fuel return line. A minimum pressure should be maintained while a minimum quantity is caught from the return. In other words the pump should deliver around 70psi while delivering around a quart or more a minute.
We do further testing by the use of a remote fuel gauge while driving. The pressure should stay very constant. The actual pressure is less important than the stability of that pressure.
I would definitely replace the fuel filter if its been a while and check what is in it(Blow in the reverve direction into a clean container - stay away from sparks). You can expect a lot of crap but not water!!
Owner 24 bay BSC
Bosch Master, ASE master L1
26 years MB technician
[This message has been edited by stevebfl (edited 04-25-2000).]