BOTH PILOTS WERE MULTIENGINE RATED AND CFI'S. THE SECOND PILOT WAS RECEIVING INSTRUCTION IN PREPARATION FOR HIS MULTIENGINE INSTRUCTOR CERTIFICATE. THEY REPORTED THAT DURING TAKEOFF THE LEFT ENGINE WOULD NOT DEVELOPE FULL POWER, AND THAT DURING THE DOWNWIND LEG OF THE CLOSED TRAFFIC PATTERN THE AIRPLANE WOULD NOT SUSTAIN FLIGHT. THE INSTRUCTOR PILOT SENSED THE ENGINE HAD LOST POWER BUT HE DID NOT FEATHER THE PROPELLER; HE RELIED ON THE MANIFOLD GAUGE TO INDICATE ENGINE CONDITION. THE INSTRUCTOR PILOT EXECUTED A FORCED LANDING AND ATTEMPTED TO RETURN TO THE DEPARTURE RUNWAY. THE AIRPLANE IMPACTED THE TERRAIN IN A 45 DEGREE LEFT BANK, 15 DEGREES NOSE LOW, SHORT OF INTENDED LANDING POINT WITHOUT THE PILOT ATTEMPTING TO FLARE. THE AIRPLANE WAS DESTROYED BY A POST CRASH FIRE. NO CAUSE FOR THE POWER LOSS TO THE LEFT ENGINE WAS FOUND.