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Dump valves are a way of trying to avoid back pressure to the turbo (caused by the throttle closing suddenly) from stalling the turbo, which causes turbo lag as it speeds up again. The usual reason for fitting them is to reduce turbo lag, although the manufacturers also claim they extend turbo life.
There are two varieties - open to atmosphere and recirculating or 'closed loop'. It should be obvious (but appears not to be) that only the recirculating variety should be used on WR and MB ur-quattros - air in the system has had fuel metered in for it, and losing this air will cause a richness burst that may include explosions in the tailpipe. A four-foot blast of flame out the back may look wonderful, but it does the exhaust no good at all and the back pressure from within the exhaust system may stall the turbo from the other end, negating all the good that it does in the inlet.
Audi uses recirculation-style dump valves on many later turbo cars, starting with the ur-quattro 20V. Since they're low-maintenance items and don't change the volumetric efficiency of the engine, they can be used without other concerns on both WRs and MBs. Next to a bigger intercooler, the most low-maintenance tuning modification you can make.
BUT - BEWARE WHERE YOU (PHYSICALLY) MOUNT THEM.
The 20V has a very different engine bay layout and doesn't have the cooling problems that the WR and MB have. For one thing, all the 'hot' components are well away from the right engine mount. Both the WR and the MB need significant airflow down the 'hot' side of the engine, to cool the turbo, exhaust manifold and right engine mount at speed. Although the books say (correctly) that the hoses both sides of the dump valve should be as short as possible, this should not be at the expense of mounting the valve somewhere where it blocks airflow down this side of the engine. If possible, the dump valve should lie almost horizontally.
One good position for the dump valve is mounted directly on the large breather port on the air mass sensor plenum - taking care to preserve the breather connection.
One of the best re-circulating dump valves is manufactured by Bailey.
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