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28MPG at 85MPH is good for the 240D. If you want better gas mileage slow to 55MPH. It will do much better. Add a injector cleaner to make sure the injectors are clean.
Your downshift problem is a vacuum issue. the 722.1 transmission uses vacuum signals to shift. It does not have a downshift cable as the 300D and 300TD does.
Do a search on vacuum systems. You want to replace all the vacuum connectors (2 way,3 way and 4 way connectors) make sure the other vacuum systems are not "stealing" vacuum and check the vacuum output of the vacuum pump. Make sure all those are working correctly, then if all is OK then you may have to look at the vacuum control unit on the rear of the Injection pump. this controls the transmission shift. But at $165 I would check all the other vacuum systems first.
To get the 240D to downshift we have to floor it, or make the car downshift. I drive the diesels differently then a gas car. Just the nature of the beast.
Dave
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1970 220D, owned 1980-1990
1980 240D, owned 1990-1992
1982 300TD, owned 1992-1993
1986 300SDL, owned 1993-2004
1999 E300, owned 1999-2003
1982 300TD, 213,880mi, owned since Nov 18, 1991- Aug 4, 2010 SOLD
1988 560SL, 100,000mi, owned since 1995
1965 Mustang Fastback Mileage Unknown(My sons)
1983 240D, 176,000mi (My daughers) owned since 2004
2007 Honda Accord EX-L I4 auto, the new daily driver
1985 300D 264,000mi Son's new daily driver.(sold)
2008 Hyundai Tiberon. Daughters new car
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