A B737-800 was dispatched with a single VOR. While conducting a coupled CAT I ILS; the aircraft oscillated rapidly at glide slope capture and descended below the glide slope. The autopilot was disconnected and aircraft control returned to normal.

Narrative

Dispatched with inoperative #2 VOR; as per MEL; VHF NAV transfer switch positioned to BOTH ON 1 with HUD selected to CAT I for the approach. Autopilot 'A' engaged. [We were] cleared for ILS Runway XX with instructions to maintain 3000 FT until established on localizer. After autopilot captured LOC; APP mode was armed to capture glideslope with flaps 5; speed approximately 180 KTS. Glideslope captured and initially appeared to track normally. Aircraft then began to oscillate in pitch and rapidly descended below glideslope. Autopilot was disconnected and aircraft was manually returned to glideslope; during which time ATC issued alert to check altitude. It is unclear whether this malfunction was associated with the positioning of the VHF NAV transfer switch as it relates to the MEL item; but all ILS information is from the #1 receiver only in this configuration. According to the MEL; this configuration is normal and acceptable unless HUD CAT II or CAT III approaches are conducted. To the best of my knowledge; this issue did not involve crew error or procedural deviation.