Mreid,

I had the same problem in my 84 300SD (117k miles) that I just bought. Flaring between 3rd and 4th gear. It also had the rough shift between 1st and 2nd (which the used car dealer told me was normal). There were bubbles in the fluid when it was warm too. The flaring didn't start until about 200 miles after I bought it. But everything worked fine under hard acceleration, and when it was cold.

I took it down to the dealer to get the transmission inspected, and they found a bunch of metal in the fluid and said that means it needs rebuilding. So I drove it down to the shop affiliated with the used car dealer where I bought it (had more tranny problems on the way: couldn't get into 4th gear at all, then it came out of 3rd and I just had neutral).

So the transmission mechanic test drives it and says the clutch is bad and he's going to rebuild it. He actually got it to go into 4th gear when he drove it, but not until it got to like 5000 rpm in 3rd.

I hope your problem isn't as bad as mine was. Good luck!

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Dean
Santa Barbara, CA
1974 280C
1984 300SD