The diagnosis is that the power steering on your car is a POS. First
off, there is a lot of slop in these things....from the factory.
(That's just how they were designed) Second, these things are notorious
leakers.....almost from the factory. Third, they are somewhat expensive
to repair and few people will even try to fix these.
Now with that being said, you will probably want to get it going again
just because it's original and you GOTTA have it. I think there are a
few places that will rebuild these for you even if you have to send it
off to have it done. Google Mustang power steering for starters.
Oh, BTW. The problem on your car (probably) is that these setups have a
valve that directs oil one way(right turn) or the other way. (left
turn) It sounds like your setup is stuck in one direction or somebody
that doesn't know squat tried to fix it.
After what happened to yours, are you ever going to trust getting it
fixed and driving it with it (marginally) working again?

If it's the valve, and it sure does sound like it is, a number of
vendors are now selling rebuilt valves, and I think I just saw one
which is advertising brand new aftermarket valves. Which ones, off
hand I do not recall, but I would start with Mustangs Plus
www.mustangsplau.com and Mustangs Unlimited www.mustangsunlimited.com,
and perhaps K.A.R. Mustang www.karmustang.com.  Also, CJ Pony Parts
www.cjponyparts.com which has a bone yard out behind the warehouse.

Of course, if you are not going concours, this might be the perfect
time for that rack and pinion mod.... : 0 )
--

Spike
1965 Ford Mustang Fastback 2+2, Vintage Burgundy
w/Black Std Interior, A Code 289 C4 Trac-Lok;
Vintage 40 16" rims w/225/50ZR16 KDWS BF Goodrich
gForce Radial T/As, Cobra drop; surround sound
audio-video...
See my ride at....
Feb 2004- http://207.36.208.198/albums/86810/003_May_21_3004.jpg
Feb 2004- http://207.36.208.198/albums/86810/005_May_21_2004.jpg
Jul 2005- http://207.36.208.198/albums/86810/davescar_7_11_05_002.jpg
Jul 2005- http://207.36.208.198/albums/86810/Engine_rebuild_006.jpg

    Bad power valve.  Could be completly shot, or just maladjusted.

    If you're doing a complete restoration, you'll have to spend big bux on
restoring the steering.  Lines, hoses, power valves, boxes, etc.  Very expensive for
mediocre 50 year old technology.
     If it's not a restoration, get a power R&P kit, like Steeroids.  Actually less
money, and a much better product.   Total Control is also very good, but very expenive.
     DO NOT get the flaming river manual steering kit.