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If the reservoir empties again or you have other problems take it back to the mechanic, have him flush the system and replace it with the correct fluid. Did you say that your owners manual says Dex? If so, I would go with that.
"PS I should add that since the rack replacement, even after 100% alignment, the car has lost the road feel and simple steering it had had. Now, it seems I'm forever making small corrections. (Probably unrelated)".
This sounds more like a binding steering shaft u-joint than a rack issue. Meaning the small corrections part. Does it also have difficulty returning to center? If so, it is most likely a steering shaft u-joint problem. After replacing the rack on my 90 240, the steering shaft lower steering shaft u-joint became problematic. Try lubing both steering shaft u-joints with WD-40. Particularly the lower one since it is constantly exposed to the elements. That might help make the steering operation smoother.
Personally, I am a big believer in using synthetic ATF in your PS system as it stopped the rack seals from leaking in my 95 850 and quieted the PS pump. It is my understanding that it is suitable for use in a wide variety of PS systems. You could flush the system, replace with synthetic ATF (I use Mobil 1) and see if that improves your steering operation, feel and response. My disclaimer - using synthetic is completely your call.
If the steering still doesn't feel right after a flush, refill and lubing the u-joints, take the car to an alignment/steering specialist (someone who does nothing but alignments - not a tire store) and get their opinion on the rack's condition. If the rack is bad, take it back to the original mechanic and get another rack as the rack replacement will be under warranty. If the mechanic balks, threaten to take him to the BBB or small claims court...
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