I just replaced the transmission modulator on my '87 300td this evening. The old one didn't hold vacuum and turned out to have a broken thrust pin as well. Once I got the new one on I tested it with my might-vac and it also wouldn't hold vacuum, i.e. the vacuum gauge dropped fairly steadily (but not as quickly as it did with the old modulator).

Does this mean I put a bad modulator in? Or are there other reasons it wouldn't hold vacuum (I ruled out the vacuum hose, it's fine)?

Somewhat coincidentally, about a year ago I replaced the modulator on my '85 300D and had the same thing happen. In that case I tested old modulator and it held vacuum, but since I had the new part and was troubleshooting the transmission I decided to replace it anyway. Once I had the new one on I couldn't get it to hold vacuum so I took it back off and put the old, working modulator back on.