I have a similar problem with my 1850 but the output voltage drops at
about 1100 watts load. The diodes appear ok, but I have no way to test
the varistors in parallel with them.
The problem started with a snapped governor lever which would have
caused very high engine speed. That would have created a very high
output voltage which I suspect could have damaged the diodes and/or
varistors causing them to fail as the load increases. I hope to replace
both and see what happens. Any thoughts?

I've put together a small page showing the repairs.
http://members.rennlist.org/warren/1850.html