This sounds kinda-sorta like the way my '87 diesel wagon - same engine - runs when the air recirculating valve is activated. Power comes and goes as the valve modulates turbo boost. On hard acceleration - like getting onto the freeway - it'll bog down, smoke like crazy, then take off.

Disconnect the air recirculating valve and it'll run like a scalded cat all the time with only modest smoke. The ARV is located right next to the turbo. Look for a vacuum line running from the passenger side front of the engine compartment to the turbo. Should be obvious. Disconnect it wherever convenient and plug the line heading back to the front of the engine compartment - a golf tee works fine for testing purposes. Give it a test drive.

If that's not it, then I vote for an injector pump rebuild. There was a service bulletin that some of these cars suffered from premature wear of a bearing inside the injector pump. Result was too much fuel, lotsa smoke, and poor milage. What kind of fuel milage is this car delivering?

- Jim