I really doubt that a .3 drop in compression would account for that much power loss. I do suspect that the addition of the catalytic convertor, which in those days was very restrictive, single exhaust, carb and distributor changes for smog, lean burn, and other things like less cam caused the drop. The E58 in my old '79 W250 (club cab, long bed, 4.10s) never seemed to really lack power in my opinion. It wasn't fast by any stretch of the imagination, but would climb the Grapevine at speed (in a lower gear). I figure the fuel mileage was not terrible considering everything (8-9 in town, 13 on the highway).