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A key prosecution witness in the upcoming murder trial of Palatine millionaire Edward Lyng will be allowed to testify that Lyng allegedly confessed to killing his wife, Stephanie, in 1977, a Cook County Circuit Court Judge ruled Thursday.

The ruling by Associate Judge Nicholas T. Pomaro was a blow to the defense, which had argued that the statements by Lyng’s former secretary, Christine Rezba Knutson, were not admissible as evidence in the case. Knutson allegedly told authorities that Lyng had confessed to killing his wife after she returned home from a neighbor’s house on the morning of Oct. 25, 1977.

Stephanie Lyng has never been found.

After the judge’s ruling Thursday, defense lawyers went on the offensive with new information calling into question the mental fitness of another key prosecution witness.

Defense lawyers Patrick Tuite and Ronald Menaker filed a motion Thursday asking that a “competency” hearing be held to determine the fitness of Lyng’s nephew, James Schweiger, who implicated Lyng in his wife’s disappearance.

Schweiger, who suffered brain damage in an automobile accident in Georgia last May, was declared incompetent to handle his personal affairs by a Dekalb County, Ga., judge in October, the defense lawyers said. That judge made his ruling in response to requests by a relative of Schweiger’s who was concerned about his ability to handle his financial affairs, Tuite said.

As further proof of Schweiger’s alleged lack of fitness, the defense included a report from a neurological hospital in Atlanta stating Schweiger was suffering from disorientation, memory loss and speaking disorders.

At one point during a weeklong evaluation at the Georgia hospital, Schweiger “had difficulty determining his location and stated he was in a hospital in Woodstock, Illinois,” the report states.

Assistant State’s Atty. Patrick W. O’Brien said he believed Schweiger would eventually be able to testify.

“The issue of competency to testify as a witness, and the question of competency to handle financial matters are two different issues,” O’Brien said. “He’s in the process of recovery and as we speak, he keeps getting better.”

Schweiger, a former employee at Lyng’s vending machine business, allegedly told authorities that Lyng offered him $50,000 to help him hire someone to kill 39-year-old Stephanie Lyng.

Schweiger also cooperated with authorities by taping telephone conversations with Lyng in which Lyng allegedly asks Schweiger to lie to authorities about the offer.

Tuite told Pamero he planned to file motions to keep those tape recordings out of evidence, too.