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It is an old wife's tale, though certainly less damaging in old diesels comapred to new engines.
I wouldn't say that. It's an old wives tale that it cleans in your crankcase. This was morphed from the Chevy recommendation to relieve lifter noise in some SBC engines. It was a thinning agent.
The ash issues aside, it will remove carbon in combustion chambers. I would not recommend it due to the ash issues ..but that's more due to contemporary engines being so inherently clean and you've got some expensive hardware involved that may not like it. Take a 60's engine in 1972 and the condition of the combustion chambers was usually pathetic due to poor fuel management. Lots of agents were used to clean them. Water, uncooked rice (YES - UNCOOKED RICE) ..and ATF. ATF got the reputation for this due to observations of leaking vacuum modulators, attached typically to the rear drivers runner on the intake, showed clean cylinders compared to others.
With an engine in that condition the side effects of such usage were usually nothing that would come close to the natural effects of fuel dilution and the pathetic oils of the time.
I've seen this in before and after situations in carb'd engines multiple times.
Again, I would not recommend it due to the aforementioned ash issues. We live in clean rooms compared to "back in the day".
There's lots of better agents to handle this now anyway.