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I would assume that your engine is just fine, -unless you've run it dry and without oil for awhile. Otherwise these engines are pretty bulletproof (and so is the transmission).
However, I would work your way down the tuneup list as mentioned previously:
1. Fuel Pressure Regulator (if the diaphram burst, you'll be running very rich).
2. Air Mass Meter (if it fails, it will probably run in a default rich mixture). -also check your Air Box Thermostat which usually fails in the "pre-heat" position and dumps hot air from the exhaust manifold into the intake and burns up the Air Mass Meter (and will cause a replacement AMM to die in about a week).
3. Check the OBD-I diagnostic codes (see the brickboard FAQ).
4. There is the possibility that you may have one of the early Bosch 561 fuel injection computers in your car, and these have been known to fail. A replacement/upgrade computer, the Bosch 951, was issued to solve this problem. They can usually be found in 1989-1992 240/740 vehicles in the salvage yards or on eBay (salvage price is typically $35 to $100). Search the archives for "951" and you should find all the information you need.
5. After you've solved the problem and your car is back to normal operation, change out your Oxygen sensor and you should be able to pass a California emissions test with flying colors. (running too rich for too long can foul out the O2 sensor, and this sensor is critical to passing the emissions test)
God bless,
Fitz Fitzgerald.
--
'87 Blue 240 Wagon, 268k miles.
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