the spedometer decided to crap out on me and it seems that this is related to how the transmission shifts. When the spedo would intermittantly work the tranny would shift fine. When the spedo would not work the tranny would not leave first. Does anyone know what is causing this and how to fix it? I am thinking it is a sensor somewhere that has become loose or has worn out.

It will not shift into second gear, it just goes to a neutral type situation. But it is fine in first.

When in "L" and you let off the diesel pedal the speedo would work until you hit the diesel pedal again.

The tranny fluid is at a correct volume.

The car is a 1980 300SD

Thanks in advance

I would say it's the governor. The governor is the road speed input to the transmission. Without that the trans does not know its moving and wont up shift.
You'll have to do a search to find out where it's located on a benz. Then remove it and see whats wrong.