Changing to a 300D is almost a no-brainer, just need to change the engine, rad, location of tranny mount and driveshaft (if it is similar to the 115s). Motor mounts are the same, and in the same place, wiring is the same, so are injection pump connections, etc.
Anything else could be a huge pain.
And any motor derived from a Chevy 350 will not last anything like any engine from MB -- the Chevy smallblock was (as is) a cheap engine made understrengh, designed in 1953 -- very short piston skirts, undersized crank (also usually off and crooked), very light weight and thin cylider walls, tiny bearings, etc. Good for one rebuild at 100,000 miles and then junk unless you spend a fortune remanufacturing it or get lucky and get a non-defective one from the factory. Some will run forever (my work van has 282,000 on it!), but most will throw a rod somewhere in the vicinity of 130,000.
Horsepower output for displacement is very small, and if you crank up the very low horsepower, it goes faster, even the 4-bolt main truck engines.
I'd go for a 300E motor if I was going to put a gas engine it in -- the electronics are fairly simple.
Otherwise, if you want a sports car, buy one -- you are never going to get that 240 to drive like a BMW 318i, anyway! Save the 240 for what it does best -- good reliable inexpensive daily transportation, and buy a sports car for blasting down twisty roads and stoplight drags.
1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!