I have at last been able to spend some quality time with the 727, shooting ILS approaches at Sydney YSSY. A couple of things learned and a puzzle for my sim colleagues. The MkIV autopilot should be set to AutoG/S to intercept the ILS. With other, more modern, autopilots, you can intercept the localiser with NAV LOC or its equivalent, then go to glideslope capture, but with this older type, if you use NAV LOC to capture the localiser, the autopilot will fly right through the glideslope without capturing in either Auto or Manual G/S. Using AutoG/S right from the start is the right procedure, and localiser and glideslope are captured just fine. Okay, get the gear and flaps configured, and then it's simply a matter of fine-tuning the speed and the 27 runs down the ILS like it's on rails....until the Inner Marker! Just  before IM at about 500ft AGL, the airspeed needle flickers a couple of times, the VSI reading goes from its 700fpm reading to zero, and the glide-slope cursor drops quickly down to the bottom of the scale. All this without any change in attitude, power or speed. The aircraft pitches down to chase the runaway glideslope and I am headed for the ground with the airspeed picking up rapidly. At about 300ft the autopilot finds the glideslope again and pitches back up, but by this time I am very close to the ground, much too fast, and have a heavy landing on the threshold, breaking the aircraft. The real autopilot is programmed to reduce sensitivity to the ILS signals at specific points on the approach in order to prevent this kind of wild departure. Is the CS 727 autopilot programmed to do this? The problem I am encountering seems to be a sudden misreading of the GS signal at the IM. Any ideas, anyone?

I have been practising. Sydney RW16R is the worst for losing the glideslope, but at other airports, the jet will do a perfect autoland. You have to decide (as in the real aircraft) to leave it in auto if everything looks good, or handfly from minimums (about 300ft). The 727's old-fashioned autopilot needs careful watching.

Like the OP says, you gotta be in GS/AUTO before you intercept the GS... and you can't click back in ALT HOLD when it is disabled in GS/AUTO.  If you do, it will never intercept, you've told it otherwise.  At that point, you're holding the pitch steady to control descent rate prior to the GS intercept, and it takes over when it finds it.  Keep in mind, when I say this, you're controlling pitch thru the pitch axis input on the AP, not the yoke or trim wheel.  Pretty much if you were on your intercept altitude before switching GS/AUTO, it should maintain the same pitch as the hold setting unless you change it.

Yes, it's fickle.  Yes, it takes some understanding.  Think about it- it's a model of a 1960's autopilot.  It's not going to do much thinking for you.

I tend to let it intercept localizer, and fly my GS intercept altitude until it comes in line, and go full manual for the rest of the descent to landing.  It's what any 727 pilot would likely do, if not just leave the AP disengaged in the first place.