From http://www.turbotbird.com
(they have install and tech articles explaining each procedure)

Stage 1 - Modifications for more horsepower

These are essential modifications that should be performed first and foremost when trying to increase the horsepower output. This article is a "what to do", not a "how to do". How to can be found elsewhere on this site or in the product instructions. The first things that can/should be done are as follows and we recommend you do them in the order presented and will explain why as we go. A good tune-up, using the correct Ford parts is a prerequisite. See other articles for tune up details.

K&N Air Filter:

First get rid of the stock air filter box and tubing from the fender well to the VAM (vane air meter, which sits under the air box and is connected to it by tubing from the bottom of the box. Save these pieces for other use or in case you want to revert to original equipment. Replace the filter with a 6" cone filter from K&N part # RE-0930, available from many parts stores, beware of cheap imitations). Why: The stock air box and related plumbing is very restrictive and convoluted. Horsepower is all about getting air and fuel in and out of the engine. The stock air box is the first bottleneck in the system. You can locate the K&N right on the end of the vane air meter or plumb it out to cold air in front of the radiator support wall or into the fender well. See the "Cold Air Induction Install" article in the Technical articles Section for more information. The benefit of this, For about $50 you will gain an estimated 6- 10 HP. It will be very noticeable when driving. It may increase your boost by 1 to 2 psi with no other changes. Note, a stock replacement filter from K & N is also available as a drop-in for the stock air box. This will be a slight improvement, though not as significant as the removing the air box and replacing with the cone. See K & N’s application page for part numbers. (http://www.knfilters.com/appinq.htm)

Ric Gillis Adjustable Boost Control Valve:

Next Modification is adding an after market boost control valve. It is relatively easy to do and can be accomplished in about an hour with a minimum of tools. Why: Each psi of boost is worth 6-10 HP. The factory system limits the amount of boost the car will produce and on some limits full boost until high in the rpm range. The after market boost valve eliminates some of the limiting components, allowing you to set your desired boost limit and get full boost much lower in the rpm range. Most valves come with instructions. Many of us run the Ric Gillis valve (http://www.boostvalve.com) as it is inexpensive and reliable. See the vendors links page for more information. CAUTIONS: For those with pre 87 TC that do not have an intercooler, we recommend you do not run more than 14 psi of boost. Higher levels could cause detonation which can lead to blown head gaskets or worse. Use of premium fuel is a requirement for raising boost levels on any year TC. For the 87-88 TC, we recommend you don't exceed 17-18 psi. The IHI turbo on these cars is a smaller turbo for quick boost response. Because it is small it runs out of steam at higher rpms and at higher boost levels it heats up the compressed air which can lead to detonation. Running boost levels above 17-18 also probably shortens the life of the turbo. We also recommend the installation of an after market boost gauge as the factory ones are not known for accuracy.

Exhaust System:

The next step is to open up the exhaust system. Changing the factory 2.5 " down pipe (DP) for an after market 3" DP is the first step. High flow catalytic converters are available, if your area requires them. After the down pipe there are some options. You can run a single 2.5 " or 3" all the way back or run dual 2.5" back. The single 3 flows the most followed by 2.5" duals. A single 2.5 is still an improvement over the factory set up which neck down to less than 2" behind the muffler's). Advanced Technologies Research (ATR) makes stainless steel systems for TCs and SVOs. Some of the after market Mustang systems can be used although extensions will be needed behind the rear axle. Mandrel bent tubing is much preferable to crush bent tubing for smoother flow. Straight through mufflers (Dynomax, Magnaflow, Walker Turbo) work better on turbos than chambered mufflers (Flowmaster and others). This is the most expensive of the early modifications but a very necessary one in opening up bottlenecks.

Fuel Pump & Adjustable Fuel Pressure Regulator:

To increase horse power, an engine needs to flow more air and burn more fuel. The stock fuel pump's were barely adequate when new and it is thought they lose some capacity as they age. If your car still has the original pump or a stock sized replacement, it is not going to be adequate as you modify the engine. The early cars had a two pump arrangement, one in the tank and also an inline pump. the later cars had a single, 88 LPH pump in the tank. We recommend you use a good brand of aftermarket pump. A lot of us run Walbro brand pumps. They come in 155, 190, 255 and 255 HP liter per hour capacity. The 190 is good choice for the above mentioned modifications, but if you are shooting for big HP and high boost, go straight for the 255HP (high pressure). It is made to deliver volume at high pressure, a necessity for high boost applications. There are many places to get fuel pump and Walbro isn't the only brand. We have found that the place linked below offers good prices. http://www.jdsperformance.com/index.asp?initemuid=436&fcmd=item&inmake=all
See the pumps for the 1987 to 1995 Mustangs.

You may also want to consider adding an adjustable fuel pressure regulator but that certainly is not required at this stage of the game. The Kirban KIR5005 AFPR for 86-93 Mustangs is a bolt on replacement for the stock FPR.


Other:

The last two we clue you in on are free. We mention them last for emphasis to the fact that they can cause harm if you don't know what detonation sounds like. Again we stress the need for premium fuel. Timing: Running 11-13 degrees of advance as opposed to the factory recommended 10 degrees is good for a slight performance increase. Disconnecting the knock sensor (KS) is also good for a noticeable increase. The KS tells the EEC to pull out boost and (we think) also timing and boost when sounds in the frequency range of detonation occur. It is, however, subject to false alarms. To avoid this just unplug the KS. But remember the KS is a safety device. Detonation is hard on any engine but much more so in a turbocharged engine. If you don't know what a detonation is and what it sounds like don't do these last two.