how does EGR valve physically function?

The egr valve has a diaphram inside - basically a membrane piston if you will - that moves up and down when vacuum is applied or taken away from one side of it. That up and down motion controls the opening and closing of a valve which admits exhaust into intake as the computer dictates. So I suppose it's possible that the 'denting' the housing could limit the movement of the diaphram - or worse. What's telling however is that it seemed to be fine for some time. I'd remove it and take a closer look. Perhaps it's simply time for cleaning or replacement.

Sound like time for a new one.

They get plugged up with carbon and the rubber goes bad.

It doesn't necessarilly mean the egr valve is the problem. The easiest way to check the valve w/o removing it is to apply direct vacume to it at idle and see if the engine idles rough or shuts off. If it does than the valve is ok and the egr soleniod is not functioning properly or you lost the vacume source to the valve. If you have no action at the valve than it's either the valve itself or the egr ports are clogged. Never seen the ports clog though.

With the engine running pull the vacuum hose off the egr valve - nothing should happen since the egr valve should be closed at idle. Then, pull the vacuum hose off of another accessory - like the purge valve or the line to the hvac controls, and simply hook it up to the egr valve. If it's working properly, the vacuum will cause the valve to open at idle admitting exhaust to the intake - that should cause a noticeable deterioration of the way the engine is running. Don't pull the vacuum hose off of something that would impact the way the engine runs - like the pressure regulator.

Code 33 - Insufficient EGR flow detected.
Look for vacuum leaks, cracked vacuum lines. Check to see if you have 10” of vacuum at the EGR vacuum connection at cruse RPM. Look for electrical signal at the vacuum regulator solenoid valves located on the rear of the passenger side wheel well. Using a test light across the electrical connector, it should flicker as the electrical signal flickers. Remember that the computer does not source any power, but provides the ground necessary to complete the circuit. That means one side of the circuit will always be hot, and the other side will go to ground or below 1 volt as the computer switches on that circuit.

See the following website for some help from Tmoss (diagram designer) & Stang&2Birds (website host)

http://www.veryuseful.com/mustang/tech/engine/images/fuel-alt-links-ign-ac.gif

http://www.veryuseful.com/mustang/tech/engine/images/88-91eecPinout.gif