260E rough running

[gtrpicker]

1987 260e
I searched the previous threads but could not find quite the same set of problems.
Starts up okay, idles around 1000rpm then as it warms up it starts to hunt up and down the rev range with a spread of about 200 - 300rpm's.
If I rev the engine I get black smoke (running rich) if I lean out the mixture it wont start.
I couldn't get what I thought was a correct reading from the 02 sensor (variation up to 1 volt) so I replaced the 02 sensor thinking it was not going into closed loop. no change and still a strange reading on the 02 sensor, I think it is so rich that the sensor cannot compensate. No vacuum leaks that I can find. If I disconnect the electrical connector in front of the fuel dist. the engine will rev up and then return to the previous idle. If I disconnect the temp. sensor there is a change in the running. I get a constsant reading from pin 3 on the diagnostic socket of about 11.34 volts. If I remove the OVP the engine still starts with the same rev variations. Am I right in assuming that its not going into closed loop or ???????
Thanks in advance for the help guys.
Michael