A couple of thoughts come to mind. One is that the egr system reduces peak flame temperature. If this was removed, you may be seeing higher engine temperatures.
On your timing, remember that what you're setting is base ignition timing. Are you checking it with the vacuum to distributor removed and plugged? The actual timing changes when vacuum is reconnected to the distributor. Also, the running timing changes with engine speed and load (vacuum). You may not have the proper distributor curve. Lighter springs for agvance weights may be needed.
Preignition is only a problem if you hear knocking. Timing advance of 26° seems rather high. I would start at 12° BTDC and move the idle up to see how it runs. Setting timing for max idle is not the way to go.
Though I've disconnected smog equipment before, I personally don't like making changes to a car unless I know exactly what I'm doing. Too many things are dependant on each other.
95 E320 Cabriolet, 131K