Wanting to take a fuel sample I made a mistake, with the engine running I opened the lower bleed screw on the box type fuel filter thinking fuel would come out, in stead the engine died. With a little cranking the the engine fired up again, but now it has reduced power. Seems fine at idle, but with my foot to the floor it lazily gains speed.

And to further add to my frustration now the water in fuel light gos on and off while driving.

It sounds very much like you have insufficient fuel pressure. Opening the filter drain with the engine running is the way to drain water out of the filter --- if there wasn't any fuel coming out but the engine shut off, fuel pressure must have been really low. There is a pressure switch in the fuel filter which can turn on the WIF light to indicate that the fuel pressure is low. Replacing the fuel filter with a new one should cure this.

But it's weird that this happens just when you opened the drain valve ...

So I did do it right, the engine is to be running when taking a sample.

What does the water in fuel sensor actually sense?
Ya, I know, "Water", but is it sensing continuity changes, pressure or something else?

There are actually two sensors wired into the water-in-fuel light. There is a water sensor of course (I think it tests for continuity like you say but can't tell you for sure, never actually put that much effort into it) and then there is a pressure sensor, which senses when the fuel pressure gets low when the filter clogs. Either or both of those sensors can turn the light on.

And yes, you did do it right. Sounds like either your filter is clogged, you have a restriction somewhere in the fuel system, your lift pump is dead (I THINK for some reason that you have an electric pump) or something of that nature.

Thanks HS, your experience and info are greatly appreciated!
I bought a new filter and will put it in to night.

Again, to original question, will air work its way out of the system after the engine starts or do I need to formally bleed the air out.

Again, to original question, will air work its way out of the system after the engine starts or do I need to formally bleed the air out.

You need to get the air out of the new filter. See this sticky on how to change it: http://dieselplace.com/forum/showthread.php?t=128587.

The IP is supposed to get the air out, but you may have to take loose the fittings on the injector lines to help it. But I don't think you'll need to do that.

If it started up and has run long enough that you could drive it the air is pretty much out. Sometimes it takes a couple minutes to bleed the high pressure lines completely if it has been really run dry, but that's it. Unless more air is being fed into the system (air leak) it will self bleed...