If the problem is the modulator, then there will be red transmission fluid in the line from the modulator to the manifold. Pull the line. Based on the volume of smoke you describe, if it isn't dripping trans fluid, the modulator is probably not the problem. Also, if the diaphram is ruptured, the transmission would not shift.
If the test above points away from the modulator, I would do a compression test on all 8 cylinders. As mentioned, keep checking the oil looking fro milkiness, choclate milky looking stuff, etc...
Great car.... it's just testing you. Show it who wears the britches!