I hadn't heard of this problem before, so I figured I'd share the solution. My 1980 manual 240d started showing a major power loss and would stall at stoplights. What made this power loss strange is that the engine would run well for about 10 seconds after starting, but lose power after that.

I suspected fuel delivery problems at first, noting a fuel leak from a (double-gasketed) new-style primer pump. With a replaced primer pump, resealed lift pump and new fuel filters, running off of an auxillary fuel tank to rule out the tank strainer, the car still had the power loss problem. What gives?

It turns out there was some failure in the ignition switch or ignition switch vacuum valve, which was sending vacuum to the shutoff valve on the injection pump whenever the engine was running, starving the engine. Until I diagnose the faulty igniton switch part I have the classic mityvac in the cabin routed to the i.p. shutoff valve to shut off the engine. If the car stopped shutting off with the key it would have clued me in to this problem earlier.

Not only can you have an oil leak from the ignition switch system on these cars, you can also have poor acceleration and stalling from it too. That I didn't know. Hopefully someone will find this knowledge useful as I couldn't find any posts about this specific issue before.