not knocking on ur setup, but...
i put a "cold air intake" on my 617 as well, however i put a piece of flex pipe from the turbo into a large cone filter. the cone filter sits behind the passenger headlight, it recieve decent airflow there, i plan on eventually running it somewhere towrds the grill on the bottom of the bumper.
the setup on that u are using is not wise!
u have apiece of steel exhaust pipe sitting rite over the turbo. this is going to get ridiculously hot and u have the the potential to melt down that air filter, which well then be sucked through the turbo!
say what u like, but in reality if u are going to do it at all, at least do it right, cutting corners like the one u just cut will not prove to be good ones.
for the oil/air seperator i just put a brether hose filter coming out towards the rear of the valve cover. this has caused no problems due to the fact that i have minimal blowby.

i highly recomend u change ur configuration around, if u enjoy driving that benz!

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82' 300SD