Yes bad seal in transfer pump will fill the injector pump with diesel fuel, then it will over run into the crankcase. Seal is easy fix, about $60. But that won't keep it from running on diesel.
It sounds like your compression valves aren't closing. with the lever up on diesel mode, remove all the spark plugs and check compression, there should be none as the valves close off the upper part of the chamber. if there is compression then the valves aren't closing, preventing diesel operation. usually just sticking linkage.
The best place for TD-9 help is Redpowermag.com in the construction equipment forum.
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