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.

Thanks for the info, however I wanted to point out that the following info is incorrect.

You can get an oil leak from the oil pressure gauge, which is mechanical on W123s. The ignition switch has no oil feeding to it.

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Milan Brown 1979 240D, rebuilt OM617.952 turbo diesel, rebuilt 722.315 transmission - engine spun a rod bearing

1979 300SD, ~90k original miles, all stock

Actually, you can get an oil leak from the shut off vacuum valve on the ignition switch. But the oil actually comes in through the shut off unit on the back of the injection pump. The diaphragm tears, allowing oil to be sucked back. The unit can still function if the rest of the vacuum system is in good shape.
At least until it tears bad enough. This serious lack of power happened to my 240D a couple months ago. After limping along for 20 minutes, I tried pulling the tubes of the injection pump shut off. Power came right back.