I've been wondering about this myself. As far as too much power, I don't think you'll have to worry as the 240 has but maybe 10-20 more hp and comperable torque (anyone correct me if I'm way off). They are basically the same engines that went into the 115 240D if I'm not mistaken. The 123 240D engine should match right up with the 220 tranny, right? I'll follow this thread as I may attempt the same swap.

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1969 220D "Berta" RIP
1982 300D turbo 250K