Smoke = Black, White or Blue? Diagnosis of smoke is key, gotta stand behind the car while somebody else starts it. Hold a rag over the tailpipe and give it a sniff. Typically its unburnt fuel from incomplete startup combustion, smells like diesel fuel? Timing chains get stretched after 150k miles, injector pump timing adjust compensates for this. Adjusting IP timing yourself the smoke will go from Blue (too far advanced) to Black (too far retarded).

And dont be so quick to comdemn the rings, thats gasoline engine logic. Compression test should be at least 250 lbs per cylinder, over 300 is considered good. As new would have been 375 lbs per cyl. And are you sure about 160k miles? Unless its documented might as well assume 260k.

Rules of working on diesels are simple: Its all about fuel flow (filters, etc) and valve adjust, thats all. Dont even let a gasoline mechanic look at the car. They like to sell new sets of glow plugs, treatin em like spark plugs, and sets of injectors too. Again thats gasoline engine logic and does not apply. Diesel fuel acts as lubricant so they never need new injectors. And hardly ever need valve work too, couple of secrets to diesel longevity. And glow plugs have nothin to do with engine performance, just gets the motor cold started then it fires on its own.

Good luck making the mental adjustment to operating a diesel. Everything you know about gasoline engines is irrelevant. For example, fuel/air mixture does NOT apply. Intake manifold creates no vacuum, injectors shoot fuel direct into pre-combustion chambers. Then fuel combustion creates its own air gasses, hence zero vacuum at intake manifold.

Also an Italian tune-up might be helpful. Take it on the highway at long haul high speeds and blow it out. As much as 1/4" of unburnt carbon can form on piston crowns and valves if the engine's been lugged at low speeds, causing incomplete combustion.

And blowby is combustion pressure going into the crankcase, not the other way around. Blowby does not push oil past the rings into the combustion chamber, niether does it push oil past the valve seals. Typical blowby forces oil vapors through the valve cover breather tube past the air filter, often forming harmless oil puddles in the intake manifold.

(edit: But yeah the pre-'73 220D 4-spd is an excellent choice, arguably better than the later '74-76 240D for interior appointments, better seats and superior sheet metal.