Which episode of the 1985 Twilight Zone was it that caused Ellison to leave the show. And what was the story behind his leaving?

According to the 2nd edition of "The Twilight Zone Companion", Ellison had adapted a story called "Nackles" that featured a sort of anti Santa Claus that was to be played by a black actor. The East coast CBS people were afraid of offending people and stopped the production.

Is Babylon 5 the only show he didn't leave in a huff?

Back in January, I posted this on the Classic Star Trek board for the episode "City on the Edge of Forever", but it also seems relevant here:
While Harlan Ellison's reaction to the re-write of his "City on the Edge of Forever" script may be excessive, he has good reasons for disliking television writing. Case in point: During the mid-1980's, the producers of the "new" Twilight Zone series convinced Ellison to do some scripts for them. While looking for material, Ellison came across a short story by Donald Westlake titled "Nackles". The story was about an abusive and alcoholic father who creates the story of an "anti-Santa" (Nackles) to intimidate his children. At the end of the story, Nackles comes to life and takes the father as his first victim. Ellison's script cast the main character as a bigotted slumlord who told minority children that "Nackles" (the anti-Santa) was coming to eat them at Christmas. Naturally, he got his in the end.
The Twilight Zone producers liked the script, and even got Ed Asner to play the main character. However, someone at CBS got cold feet, fearing that viewers might take offense at a bigotted and evil Santa Claus. Ellison rewrote the script, but CBS still interfered, and the story was shelved. Ellison was quite rightly infuritated by the experience, and along with his experience with Roddenberry, declared that this was why he hated working for television. So while Ellison's bitterness about Star Trek may be excessive, he does have some justification for his feelings about television in general.
BTW: Twilight Zone Magazine (now defunct) ran this story in 1985 or 1986, and included Westlake's original story along with two versions of Ellison's script. The Westlake story was superior to Ellison's scripts, but unfortunately it wouldn't have filmed well. Ellison's scripts were good, but not really outstanding. The slumlord really had no reason to be spreading the "Nackles" story other than he was an a**hole, and that just diminished the impact of what he was doing. Surprisingly, the rewrite (done at the behest of CBS) did improve some other aspects of the script.

From what I understand, that's what happens to most writers for television. They get ripped off (like Ellison's "Brillo") or changed ("City on the Edge of Forever"). Harlan Ellison just happens to be more vocal about his injustices than most. And rightfully so, I must add.

According to the TCM streaming app, Harlan Ellison (among others) worked on the script for 1967's Valley of the Dolls, but (you guessed it) he demanded that his name be removed from the credits.

Never liked the man,