Looks like your distributer is in a tooth off, usually you can't get to the lower TFI screw if it is in right. Someone may have moved the wires around to get the timing right, but it plays havoc with the idle and low speed performance when the injector timing doesn't match the ignition timing.
The distributor rotor and the PIP shutter are locked in mechanical alignment by the manufacturing process. That means you cannot get the injector timing offset from the ignition timing. The PIP shutter wheel has one slot smaller than the rest and this identifies #1 cylinder and the start of the timing reference for injector to ignition timing.
The only thing that being "one tooth off" does to you on a 5.0 engine is it can prevent you from being able to turn the distributor enough to get the base timing advanced to the point of max performance.
AIBANDIT: Your distributor and wires are in the right place. You will need a timing light to set the timing correctly.
Paint the mark on the harmonic balancer with paint -choose 10* or 14* or something else if You have NO2 or other power adder.
Remove the SPOUT connector (do a search if you want a picture of the SPOUT connector) It is the 2 pin rectangular plug on the distributor wiring harness. Only the EFI Mustang engines have a SPOUT. If yours is not EFI, check for a SPOUT: if you don’t find one, skip any instructions regarding the SPOUT
Warning: there are only two places the SPOUT should be when you time the engine. The first place is in your pocket while you are setting the timing and the second is back in the harness when you finish. The little bugger is too easy to lose and too hard to find a replacement.
Connect timing light up to battery & #1 spark plug.
Start engine, loosen distributor hold down with a 1/2" universal socket. Shine the timing light on the marks and turn the distributor until the mark lines up with the edge of the timing pointer. Tighten down the distributor hold down bolt, Replace the SPOUT connector and you are done.
The HO firing order is 1-3-7-2-6-5-4-8.
Non HO firing order is 1-5-4-2-6-3-7-8
To time the ignition: remove the SPOUT and use the timing light to check the timing against the marks on the harmonic balancer. Loosen the distributor hold down bolt and turn the distributor slowly until the light and the desired mark on the harmonic balancer line up. Tighten down the distributor hold down bolt and re-install the SPOUT jumper. When you put the SPOUT back in the computer will advance the spark. The timing may move around some with the SPOUT installed.
Here's some help to find your other problems
Dumping the computer diagnostic codes on 86-95 Mustangs
Revised 19-May-2009 to update drawing for dumping the codes on 86-88 Mustangs with no check engine light.
Dump the codes and see what the computer says is wrong…
Codes may be present in the computer even if the Check Engine light isn’t on.
Here's the way to dump the computer codes with only a jumper wire or paper clip and the check engine light, or test light or voltmeter. I’ve used it for years, and it works great. You watch the flashing test lamp or Check Engine Light and count the flashes.
Be sure to turn off the A/C, and put the transmission in neutral when dumping the codes. Fail to do this and you will generate a code 67 and not be able to dump the Engine Running codes.
Dumping the Engine Running codes: The procedure is the same, you start the engine with the test jumper in place. Be sure the A/C is off and the transmission is in neutral. You'll get an 11, then a 4 and the engine will speed up to do the EGR test. After the engine speed decreases back to idle, it will dump the engine running codes.
Here's the link to dump the computer codes with only a jumper wire or paper clip and the check engine light, or test light or voltmeter. I’ve used it for years, and it works great. You watch the flashing test lamp or Check Engine Light and count the flashes.
See
http://www.troublecodes.net/Ford/
If your car is an 86-88 stang, you'll have to use the test lamp or voltmeter method. There is no functional check engine light on the 86-88's except possibly the Cali Mass Air cars.
The STI has a gray connector shell and a white/red wire. It comes from the same bundle of wires as the self test connector.
89 through 95 cars have a working Check Engine light. Watch it instead of using a test lamp.
The STI has a gray connector shell and a white/red wire. It comes from the same bundle of wires as the self test connector.
WARNING!!! There is a single dark brown connector with a black/orange wire. It is the 12 volt power to the under the hood light. Do not jumper it to the computer test connector. If you do, you will damage the computer.
What to expect:
You should get a code 11 (two single flashes in succession). This says that the computer's internal workings are OK, and that the wiring to put the computer into diagnostic mode is good. No code 11 and you have some wiring problems.
Codes have different answers if the engine is running from the answers that it has when the engine isn't running. It helps a lot to know if you had the engine running when you ran the test.
Trouble codes are either 2 digit or 3 digit, there are no cars that use both 2 digit codes and 3 digit codes.
Alternate methods:
For those who are intimidated by all the wires & connections, see
http://www.actron.com/product_detail.php?pid=16153 for what a typical hand scanner looks like. Normal retail price is about $30 or so at AutoZone or Wal-Mart.
Or for a nicer scanner see
http://www.midwayautosupply.com/pc-7208-90-equus-digital-ford-code-reader-3145.aspx – It has a 3 digit LCD display so that you don’t have to count flashes or beeps.. Cost is $30.
