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You are correct in every repect except for a few key points. On the EZ....K systems the ignition timing is retarted upon detection of knock. If knock is still present the Fuel ECM will be informed to enrich the mixture. When further knock is not detected mixture is restored then timing is advanced in small steps back to the nominal ignition timing setting. This information comes from the Bentleys Manual, Haynes Manual and a book titled Bosche Fuel Injection and Engine Management, Author Charles O. Probst.
No publication refers to any kind of ignition advance capability other than a return to nominal after a knock detection retard event. The Bosche systems are not capable of any kind of automatic advance to the point of engine knock but rather will only retard when knock is present.
It is true that a low octane or poor quality fuel will affect engine performance. Timing must be retarded to prevent knock with such a fuel. It is also true that a specially designed or modified high performance engine will be capable of extracting more power from a high octane fuel. It really does surprises me that the myth lives on that high octane fuels will make a standard production car go fast. This despite much information available (even from the oil companies) to the contrary.
I believe this is caused but what I call "auto transfer placebo effect", you know like when you wash, polish and clean the car it runs better. Those who waste hard earned cash on the high test fuel want to justify it so there car really does appear to run better for them. That's just the way our brains are wired I guess.
With all due respect to your friend and even more to your father I have heard much misinformation and nonsense tumble from the mouths of mechanics, other dealer employees and many other "experts", so I should treat that kind of information with an element of skepticism.
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