David E. Houstle, a 42-year-old Baltimore man who had been serving a nine-year sentence in a federal prison on pornography charges, was freed last week on the condition that he return to Guatemala where he had once lived as a fugitive from the United States.

The unusual probation was imposed by U.S. District Court Judge Frank A. Kaufman after a hearing in which lawyer Andrew Jay Graham explained that his client was needed in Guatemala by a fundamentalist missionary who had fallen ill with a kidney ailment.

Houstle was freed after serving 181 days in federal prison in Danbury, Conn., and currently is making arrangements to return to Guatemala where he has an air-conditioning and refrigeration business, a wife and a newborn son he has never seen.

Although he was indicted along with five other men in 1978, Houstle was not arrest-ed until last September when he was picked up by Interpol in Guatemala and flownback to the United States by the U.S. Embassy.

As head of Danny Boy Productions Inc., he was charged with producing and distributing still photographs and films such as "Milk Drinkers Make Better Lovers," which depicted 8- to 15-year-old boys engaging in sexual acts in various private homes.

Houstle pleaded guilty to three of the counts contained in the indictment-- conspiracy, distribution of pornographic material and illegal use of the mails--and was sentenced to nine years. Two of the defendants in the case lived in West Germany and were outside U.S. jurisdiction. Of the other three, two pleaded guilty and received sentences of five and seven years, and a third was found guilty by a jury and was sentenced to nine years. All are free on parole after serving time in prison.

"The judge was under the impression the defendants had seduced young boys and had psychologically coerced them," Graham said. "He sentenced the defendants under the belief that these kids were innocents. They weren't so. They were experienced street hustlers."

Although federal prosecutors opposed the motion to reduce Houstle's sentence, Kaufman, saying the decision was a "terribly close call," ruled that little could be gained from further incarceration and that it would be best for the taxpayers of the United States to have the defendant doing something useful in Guatemala.

David E. Houstle's probation is best understood in the context of his past.

Until he built a new life reading the Bible, running a business that employed a half dozen Guatemalans, and helping the mission in Guatemala City, the trim balding man with a thick red mustache freely concedes he didn't do much of anything useful in his 42 years.

"I was a failure in life," he said. "A real flop."

The oldest of seven children, born to parents who teach at Baltimore area colleges, Houstle grew up among intelligent, well-traveled people. The writer John Dos Passos, once a neighbor, used to drop by for Sunday dinners. One of Houstle's sisters is a concert pianist. Although he feels he has talent in the creative arts, he didn't take to college, something he rues. In 1968, he was sentenced to five years on a burglary charge.

In 1973, Houstle strapped a portable typewriter on the back of his Honda 750 and set out for Rio de Janeiro, hoping to write a book. In Mexico he was hit by rocks that had been unleashed by an earthquake, and spent a month in Guatemala nursing a bruised hip and repairing his motorcycle.

Houstle started a "real estate maintenance business," fixing lights and hot water heaters, but "I was always hard up for money." In 1975, after writing pornographic books, he got into movie making in hopes of reaping big cash. "I had this foolproof scheme," he said. "It only had 12 different holes in it."

Danny Boy Productions, housed in a lab on Orem Street in Baltimore, compiled a mailing list of about 200 names, and according to Houstle, earned about $40,000 in the 2 1/2 years it operated. "What I did was wrong, morally wrong," he said, "It was garbage. I'm embarrassed I got involved. I mean how inane can you get?"

Houstle returned to Guatemala after a major earthquake in 1976 and helped carry water to ravaged towns. In 1977, traveling under an assumed name, Don Roberton Bott, he went back for good and stayed until he was arrested last fall.

"I was this other man," he said. "I had to create a past and learn to act as naturally as possible. It got so someone could call 'David' and I wouldn't respond at all. Most of what I told people was the truth, but being a fugitive is a total bummer."

Influenced by a missionary he will not identify other than to call Frank, Houstle says he began to read the Bible and reform his life. He studied the ideas of a "universal conscience" contained in C.S. Lewis' "Mere Christanity."

"The big hand didn't come out of the sky," he says. "I didn't get the big glow. I'm not a churchgoer, but I read the Bible every day, and I believe in the principles it teaches. I'd always been looking over my shoulder, always looking for what was in things for me. Altruism can be fun."

While in Guatemala, Houstle says he helped organize an American football program and translated NCAA rules into Spanish. He has used his business to train Guatemalan workers, and says he has contributed some of the earnings to a medical clinic.

The life he established for himself in Guatemala was appreciated by a number of people who wrote letters in Houstle's behalf to Judge Kaufman. Houstle says he wants to go back to Guatemala quietly, to rechristen his son, and move his wife out of the dirt-floored shack she has lived in since he was arrested. What money he was able to earn in prison he sent her. He has projects he wants to launch, including a "G-rated movie about a 10-year-old Inspector Clouseau," and he hopes, he says, to become a citizen of the Central American nation, a country he finds "more civilized." "People get along," he said, "There's only one cuss word in the whole language."

"When I get back to Guatemala," he added, "then I'll feel free."