Interesting issue with SFR in PL/pgSQL ...

I am about to port a large database application from 7.4.x* to 8.0 
(mainly to test 8.0).
There is an interesting thing I have come across:

CREATE OR REPLACE FUNCTION xy(int4) RETURNS SETOF RECORD AS '        DECLARE                v_is    ALIAS FOR $1;
        v_loop  int4;                v_rec   RECORD;
 
        BEGIN                v_loop := 0;                SELECT INTO v_rec 0;
                WHILE   (v_loop < v_is)                LOOP                        SELECT INTO v_rec v_loop;
           v_loop := v_loop + 1;
 
                        RETURN NEXT v_rec;                END LOOP;
                RETURN NEXT v_rec;                RETURN v_rec;        END;
' LANGUAGE 'plpgsql';

SELECT * FROM xy(0) AS (id int4);
SELECT * FROM xy(1) AS (id int4);

This function works nicely in 7.4.x (even without the last RETURN NEXT).
8.0 returns an error.

[hs@fedora tmp]$ psql microtec -h epi < t.sql
ERROR:  RETURN cannot have a parameter in function returning set; use 
RETURN NEXT at or near "v_rec" at character 324
ERROR:  function xy(integer) does not exist
HINT:  No function matches the given name and argument types. You may 
need to add explicit type casts.
ERROR:  function xy(integer) does not exist
HINT:  No function matches the given name and argument types. You may 
need to add explicit type casts.

7.4.1 works nicely ...

[hs@fedora tmp]$ psql microtec -h epi -p 9999 < t.sql
CREATE FUNCTION id
----  0
(1 row)
 id
----  0  0
(2 rows)


I have tried to look it up in the source code (gramy.y line 1144) but I 
don't really know what the new check which has been added in 8.0 is good 
for.

Can anybody give me a hint how it is supposed to be?
Regards,
    Hans

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