Success

Went to the dealer today and got the 2 airswitches that go on top of the valve cover. And the IP vacuum control valve. Installed them and the car is now operationg normally. engagement, upshifts and downshifts all seem normal.
A lot cheaper than a new tranny.

The tranny guy I talked to at the dealer said that a lot of trannys have been replaced or rebuilt due to the bad IP vacuum valve. So take note.

Installation was quick. Unbolt the 2 allen bolts. Disconnect the 2 vacuum lines. Unclip the IP lever and install the new unit. DO NOT ADJUST the new unit. It is factory set for the car.

Also thought I had miss adjusted, or a bad steering box.
Got a "clunk" rotating the wheel. Found the power steering pump dry when I was replacing all the fluids so I wondered about damage to the pump and the steering box.
figured out that the noise was comming from inside the car, not the gearbox. Found a wire harness connection jambing in the column flex disks.

So a good day. Don't need a new tranny and don't need a new steering box.
The car is on the road and usable.

Now onto the Air conditionaing.

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