After being laid up for 11 years my 1989 digital dash S4 is back on the road after extensive recommissioning works.
When I switch on the ignition the instrument lights come on and when I then switch on the side or headlights the
instrument lights go off. This problem has flummoxed both me and my trusted mechanic friend.
Can anyone shed any light on this problem.

 

They go from full-bright for daytime illumination to whatever your little rheostat is set for when headlights turn on. Try spinning the rheostat a few times to see if that helps. The little brightness rheostat is a simple wire-wound type, subject to age-related corrosion. Remove and unplug the rheostat, and spray it liberally with some good electrical contact cleaner. That usually takes care of it.

In a parallel thread, you mention a lot of work on the digidash, which typically includes pod removal. In that process, there's a very good chance that the wires to the rheostat were accidentally left disconnected. That would certainly cause the symptom you describe.