The leak on top of the IP can cause a fuel leak, but unless it is really bad won't cause the rack to bleed down, nor will it cause the rack to become aired up. It should be addressed (common problem), but is doubtful it is your main issue here.

You have 3 lines you need to be paying attention to here. Since they're old, they're likely brown and hard to see through (they were clear at one point if you can believe it).

Get a very strong light and place it behind the lines one at a time and see where air is entering.

First check the line from the lift pump to the filter canister. If you see bubbles or foam here, you know the leak is likely internal to the lift pump.

Next check the line from the filter canister to the supply side of the injection pump. This is the middle line running to the side of the IP you can see. If you had no bubbles in the line from lift pump to filter, but you have bubbles in this line, you likely have a leaking gasket, O-rings, or crush washers.

Last check the line returning to the filter canister from the injection pump. If you had no air in the first two lines, but have air here, you likely have a leak in the banjo bolts/crush washers, or maybe that leak on top of the IP is worse than you think it is.

Contrary to what seems logical, you can have air drawn in on a circuit under pressure due to a venturi effect as the fuel rushes by. It pays to have a methodical approach and check piece by piece to see where you first see air in the system.

__________________
Current stable:
1995 E320 149K (Nancy)
1983 500SL 120K (SLoL)

Black Sheep:
1985 524TD 167K (TotalDumpster™)

Gone but not forgotten:
1986 300SDL (RIP)
1991 350SD
1991 560SEL
1990 560SEL
1986 500SEL Euro (Rusted to nothing at 47K!)

Thanks, seems this is now getting somewhere .
So, there is clearly air in the line between lift-pump and main fuel filter.
Next, I temporary removed the primary filter and connected clear PVC line directly from fuel canister to the lift pump; here I noticed something really strange; there seemed to be air visible at certain RPM in the line between canister and lift pump!?
Will now go and get a new PVC line to replace this one, just in case there is a small crack somewhere in there.....
One thing I noticed; there is very strong pulsing on this line when motor is running; I guess this is normal way pull pump operates?
Also, In order to take pull pump out of equation would I be able to replace it with small electric fuel pump used for regular carburetors; there is a generic facet at local Napa?
Would normal carburetor pressure of roughly 3-5psi be able to replace and bypass pull pump?

The pulsating is normal, the lift pump is a piston pump and the pulsation is normal.

If you had air in the line, even with a substitute line in place, you either have an air leak on the inlet to the pump (wrong size hose or wrong style clamps WILL cause this), or you have an internal leak in the lift pump. There are a variety of O-rings in there that can harden and leak. The prime suspect here would be the one sealing the final delivery check valve, or the pushrod going into the IP.

Having been here, the pushrod O-ring is a prime candidate, the one on my car was leaking a surprising amount of fuel into the IP it was so worn out. If fuel can leak out, air can leak in.

A 3-5PSI pump won't cut it. The lift pump will maintain 10-15PSI in the fuel rack.

__________________
Current stable:
1995 E320 149K (Nancy)
1983 500SL 120K (SLoL)

Black Sheep:
1985 524TD 167K (TotalDumpster™)

Gone but not forgotten:
1986 300SDL (RIP)
1991 350SD
1991 560SEL
1990 560SEL
1986 500SEL Euro (Rusted to nothing at 47K!)

If the lift pump is leaking fuel into the IP, I think that fuel would end up in the engine oil? Dilution of the engine oil is a bad thing, check the oil level and if it seems to be gaining engine oil, that's a bad thing. Fix the leak, and immediately change the engine oil.

__________________
Respectfully,
/s/
M. Dillon
'87 124.193 (300TD) "White Whale", ~392k miles, 3.5l IP fitted
'95 124.131 (E300) "Sapphire", 380k miles
'73 Balboa 20 "Sanctification"
Charleston SC

You should be able to borrow or get a used fuel pump out of a fuel injected car. Most are around thirty pounds output pressure. This is about the same pressure as a good lift pump delivers. They are usually part and parcel of the fuel gauge sending unit.

Experience beyond my level always helps. The poster that has stated that air can still be drawn into this system while under pressure. I must admit has always mystified me a little. Yet it does happen often. . I do not think it is the ventui effect as much as the decline of the high frequency very strong element produced pulse pressures might provide a very short term but powerful frequent negative pressure or vacuum component. In the base of the injection pump and anything in that circuit. This could easily explain the repair of a bubbles in the system from a non sealing secondary fuel filter but it did not leak fuel when under operating pressure.

What is certain is that if you put a 0-30 pound pressure gauge on the base of the injection pump. One that is not fluid dampened. The gauge will slam from one extreme to the other. Only the pin on the gauge stops it from going well into the negative pressure range.

I can not contribute much. The concept of fuel bleeding back is easily understood in itself. If the check valves in the lift pump are not sealing well for instance.

An effect if the lift pump is struggling against too much resistance in the fuel tank filter or really gunked up fuel line. The lift pump can create bubbles.

Although it also is a little strange that you would develop drain
back problems at the same time. So this might also be created by the vent line of the fuel tank being so restrictive. You may have a partial vacuum situation existing in the tank.

So remove or loosen the fuel cap. What could occur is the fuel is being sheared into a mixture of bubbles and fuel. When the lift pump has to pull on the supply so hard. If that fuel tank is under vacuum.

How much remaining vacuum in the tank to enable all your symptoms? Would be beyond my capacity to estimate. Although there should be none. I am tending in this direction because you did not have drain back problem before. Plus even when running you are seeing bubbles out of the lift pump.

At the same time even though I am probably wrong it is at least worth checking out. I would after examining all the posts so far. Even I can loosen or remove a fuel tank cap. Try to observe if you hear anything while doing so. If this does not change things next perhaps verification that the fuel line does do a reasonable gravity flow up front to eliminate the tank filter and fuel line.

I really appreciate it that we have some working and retired mechanics on this site. You cannot replace their years of experience and developed intuition. Without putting in the time they have.