HEHE, lol.
Actually I am an computer science graduate, major in embedded systems. I did a project like this but for a gasoline engine, (a Dacia 1300 which is a copy of Renault 12), and it is running very smooth, not to mention the fuel economy . (as an inspiration I took the Megasquirt system, but used a totally different approach. But they have a very good theoretical starting point).
Sure, a gasoline engine is far more easy to control than a diesel. But I don't see why it should take that much money. All you need to buy is a couple of new electric controlled injectors (i.e. with solenoid) and to manufacture the common rail and pipes to the injector to your specifications (mine was made by a company specialized on high pressure pipes). That was the expensive part of the project. It was about 700 euros, which is abot 1200 US$. You also need some mass air sensor,throttle position sensor, air temperature sensor, manifold absolute presure sensor, and lambda sensor, and I manufactured myself a crackshaft and camshaft position sensor (using laser diodes and phototransistors and a disc with holes in it). (I don't know why even today, the cars use hall-effect sensors for that ). A ping (knock) sensor is a nice touch also.

You just have to figure out what are the timings for the injections and how to calculate the amount being injected. And that is not very hard, being a mechanical system this can be done even with reverse engineering, but I am sure that there is some documentation on this somewhere.
The only problem in my mind is what pressure should the common rail have? (for the gasoline engine i used 3.5 atmospheres).
The timing on the w123 engine I think is 24 degrees, so that's solved. the next thing is to find out what is the relation between the throttle position, manifold pressure (and other variables, i don't know the w123 engine that well, but I am keen to find out the whys and hows) and the amount of diesel injected. I don't think that's hard to do also.

As we are on the subject. My new w123 300TD was a taxi before I bought it (last week ), and makes horrible horrible noise compared to the 240D my father uses. The pistons are ok, not broken or anything (the former owner did the segments at a garrage, and i peeked to see what's inside the engine). Do you think that valve adjustment and injector nozzle replacement will help? I also read an article on the internet that the precombustion chamber can be cleaned too.. Do you know how that is done?
Thank you