On July 14, 2001, about 2015 central daylight time, a Schweizer 269C helicopter, N61434, piloted by a commercial pilot, sustained substantial damage on impact with vehicles and terrain on takeoff near a parking lot near Walker, Minnesota, following a reported in-flight loss of engine power. The sight seeing flight was operating under 14 CFR Part 91. Visual meteorological conditions prevailed at the time of the accident. No flight plan was on file. The pilot and two passengers sustained minor injuries. The local flight was originating at the time of the accident. The pilot stated: Two individuals approached my staff and indicated a desire to enjoy a ride. I completed my refueling operation of the a/c [aircraft] and verified that I had indeed 18 gallons of 100LL fuel in the 300C's tanks. I started the a/c as normal, completed a full runup procedure to include mag[neto] checks and positioned the a/c for the pax [passenger] to board. Upon securing them I asked if either of them had ridden in a helicopter before and one stated that he had and the inboard pax stated he had not. I reassured both that I will inform them of my intentions prior to all maneuvers and that it is always my desire to provide a very smooth controlled flight. I briefed my route of departure as being straight out and slightly to the right after effective translational lift. I verbalized that I was increasing power after all internal checks were complied with via a standardized University of North Dakota approved Schweizer 300c checklist that I've chosen for my use. I stated we would be getting light on the skids and then once we were airborne, I stated we are now flying, just like a butterfly. I then verbalized as I do on every flight due to my military habit transfer, that flight controls and CG [center of gravity] were both normal. I verified visually and verbally then stated engine and rotors are 3200 rpm and we have power for takeoff (another standardized procedure I used on every flight...) Manifold pressure indicated 23-23.5' of MP [manifold pressure] (placard limits for the given conditions were determined to be 26.2'). The fact that all was indicating normal, I re-confirmed power settings and we departed via a normal rate of climb takeoff. All indications were perfect up to a point at which I was at approximately through ETL [effective translational lift] (16-24 kts) @20-25 kts and at 15-20 ft AGL. At the time I normally experience an increased efficiency and continued rate of ascent, the opposite occurred. The aircraft became excessively sluggish, with virtually no power. I immediately visually confirmed that the engine was operating and that a complete engine loss was not experienced. The engine and rotor RPM's were definitely joined and had remained within the green arc. The manifold pressure was @ 24-24.5'. It was quite obvious very quickly the aircraft had momentarily suffered a partial power loss. I was not at sufficient altitude to reduce collective to minimize power applications and as such upon realizing despite instrument indications as stated the a/c was descending rapidly and would impact into a parking lot of vehicles below me. I leveled the a/c slowed the forward airspeed and applied all remaining collective in an effort to slow the main rotor blades prior to impact. I struck the top of a vehicle in a level profile slid off the left front side and the a/c then came to rest on its left side. As the critical angle of the blades was reached the blades impacted a vehicle in front and left of my route of flight and they stopped instantly. I reached up and turned the key off and pulled the mixture and turned off the battery while all three of us egressed out of the a/c with the assistance of numerous people in the area. One of my ground personnel staff, a 46 year old adult, stated to me he had determined something different in the sound of the a/c on climb out. He stated it was not a perceptive 'backfire' or complete loss of engine noise, yet a subtle change of 'some type'. ... The fact that I had personally executed the same type departure out of that location for the previous days for @ 100-150 times during much greater demanding atmospheric conditions during the high temp and high humidity times of the previous afternoon and with similar loads makes me very suspect as to the integrity of the engine and its performance. All weight and balance calculations were within CG limits and the DA [density altitude] of 2700 was as noted, not excessive. ... The pilot stated that there was no other suitable terrain to land on. A witness stated: The helicopter lifted about 3 to 5 feet vertically off the platform and hovered for several seconds. The pilot then nosed the helicopter over and started moving forward and gaining altitude. At that point I started to turn to the person next to me to say something but my attention was immediately drawn back to the departing helicopter because of a change in the sound from the helicopter. The first thing that I noticed was that the helicopter was now flying level, still moving forward but not gaining altitude. ... The engine was shipped to Textron Lycoming for an engine run. The valves were inspected in accordance with Service Bulletin 388. The valve's readings were taken and found to be within specifications. On October 10, 2001, the engine was run in a test cell. The engine produced full rated power. (See appended engine test log.) The Schweizer 269C Height Velocity Diagram at Sea Level figure was reviewed. The height, "15-20 ft", and velocity, "20-25" knots, the pilot stated in his statement were plotted. The intersection of the height and velocity was found in a crosshatched region on the figure. A note on the figure stated, "AVOID OPERATION IN CROSSHATCHED AREAS." (See appended helicopter manual excerpt.)