my 85 380sel idle around 900rpm in D but shot up to 1600rpm when I shift to N before settling down to around 900rpm again. This sudden surge of power always happened when I disengage.
Could it be a faulty throttle position switch, idle speed actuator or transmission.

I doubt that the problem is in the trans. The car shouldn't idle that high ever. I believe the problem is in the idle system.

On that system it usually is a bad controller. It also is usually just bad solder contacts inside it. Sometimes they go bad because the idle valve itself has shorted. Rebuilt controllers come with instructions to test the ohm value of the idle valves. There are two designs with different values. I don't remember the values but they are probably around 10 ohms. (I think one is higher and one lower, since you aren't trying to verify model just making sure the value is above zero may be enough).

The throttle switch must be closed for idle control to work, so verify it electrically. It is buried so you will have to find the three wire connector at the top front of the motor to evaluate.

__________________
Steve Brotherton
Continental Imports
Gainesville FL
Bosch Master, ASE Master, L1
33 years MB technician