I have a problem with my 89 740 GL sedan: it won't lock out of overdrive. It goes into overdrive perfectly, all the time, without any problems. I replaced the shifter overdrive switch, the relay, and then I found broken wires under the shifter, so the switch wasn't doing anything. I fixed the broken wires, and then the switch made the arrow light on the dash go on and off, still no lockout though. I just replaced the solenoid today, and thought that would fix the problem. Nope. I can hear the relay click as well as the solenoid. I've come too far to give up now!
I should mention that the transmission was just given a full rebuild, but I don't know what if anything was done to the overdrive unit itself.
I'd really like to be able to drop down to 3rd gear for the engine braking on hills, and to have extra giddyup around town.

 

the OD on a AW70/71 is internal to the transmission, its not a seperate unit like it was on the old M46 manuals.

when the solenoid is powered, it opens the path between the two holes on the face of it, allowing hydraulic pressure to flow through it, this in turn enables the automatic OD. when the light is ON, the solenoid is OFF (yeah, weird), and the holes are closed, and the OD is disabled, leaving you with 3rd as your top gear.

I do believe you should go back to the transmission rebuilder with this and let them diagnose it.

oh.. when you installed the new solenoid, there were 2 o-rings on the face of it, right? an inner and outer one? if the inner one is missing, the solenoid will probably act like its always on.

here's a 'hacked' solenoid, this has a notch cut into the face and is missing the inner o-ring, this disables the OD disable function by always allowing fluid to flow between the holes....

 

I drove the car yesterday with the new overdrive solenoid, and it goes in O/D just fine, but won't lock out. Also, I unplugged the solenoid to see if it would lock out of O/D, and it still goes in. OK? I guess I'll take the solenoid out again and make sure I got both o rings in there when I was putting it in, and look it over to figure out how fluid is getting through when there's no power.