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You have a leaky heater core. Just replaced on on my new-to-me '89 760. The PO did not keep up with maintenance of the cooling system. As the coolant ages, it becomes acidic and promotes electrolysis. This means that your heater core and possibly the radiator erode away.
There is a good description for replacement in the FAQs. I have not changed the heater core on a 740, but my understanding is that it is slightly easier than the 760. It isn't hard, just long, tedious and uncomfortable. I liken the experience to spelunking. You will need a 6" to 8" flex drive to remove the hex head screws at the top of the heater control box. There are 12 screws around the perimeter of this box. You will also need a sealant when putting it back together. I used a strip of winshield butyl rubber. It is way too large, but it streches and lays in the grove perfectly. At a couple of junctions, there is foam rubber to form a seal. This was pretty degraded and I replaced it with self adhesive weather stripping from the hardware store. Common wisdom says to replace the vacuum dampers while everything is apart. The double acting damper is the most notorious for failure and that is the only one I replaced. They are abour $50.00 each.
The ductwork is obviously designed to go in before the dash goes on. The lengts are such that it is very difficult to slide some of them together. In one case I got tired of wrestling and risking damage so I judiciously shortened the "inner" tube. Made reassembly a breeze and there is still more than an inch of engagement.
I also had a little trouble getting the two brass tubes through the rubber seal in the firewall. I recommend a helper to guide them as you insert the core from the inside.
Big Hint: Check the new core for leaks before installing. This was a recommendation on the paperwork that came with my new core. Glad it did as the first one leaked. I hooked it up to air compressor at 20 psi and put it in bucket of water. Bubbles told all.
Dan
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