Thanks for all of the comments.

Alfa, The valvetrain sound that you were hearing may have been the airfilter rattling. When I pushed down on the air filter the sound went away. That is if we are talking about the same sound. I offered him $900 on the 18th and he said no of course. I think that he'll go for $1500. I'm tempted but I just dont know this motor like I know the 617.

What is the typical longevity of this motor?

I did notice some smoke under the hood. It seemed like it was either coming from the turbo or possibly oil leaking onto the exhaust. If the problem is the turbo, are they interchangeable with the turbo from a 617?

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1998 E320 150,000
1980 300SD 240,000
1965 190D 79,000