Problem Solved!
The problem is a bad MAF Sensor, which ironically was recalled THREE WEEKS AGO! When we began looking for the problem the recall wasn't activated for my car. However during that course of time, Subaru has issued a recall and I got my car fixed for FREE! Well the sensor anyway....
I wanted to thank everyone for their input, and especially thank the person who told me to post on the Ultimate Subaru Web Site! They were the ones who informed me that there is an active recall.
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So if you have a 1999 Subaru Legacy that is having accelleration and loss of power problems, contact your dealer. You may have a faulty MAF Sensor.
The symptoms are as follows:
Unstable idle speed Occassional stalling when not in gear. Constantly high CO ( and lambda voltage) at idle. Should oscillate between lean and rich under normal circumstances.
Cause: MAF Sensor reads too high an air flow on idle, and too low an air flow at high loads. Since the ECU thinks there is more airflow at idle than there really is it pulls too much fuel, causing an overrich mixture which the ECU cannot compensate for sufficiently. Since the ECU thinks there is less air flow on high loads then there really is, it puts out too little fuel, causing a lean mixture. Since ECU runs open loop air/fuel ratios at high loads, AFR compensation is not even attempted.
Remedy: Replace the air flow sensor ASAP. It is not possible to clean these delicate hot film sensors effectively. As the sensor deteriorates, mixtures become leaner, eventually causing damage to the engine due to det and high temperatures. As a short term fix, raise the idle speed, use a high octane fuel and keep engine revs as low as possible while driving.