I believe the "oil in the coolant" problem is symptomatic of M103 head gasket failures (which is not as common a problem as on the M104). For the M104, the external leak near the rear of the cylinder head just gets worse.
In it's severest form, the engine simply overheats rapidly, and that would put it in "undriveable" mode. Otherwise, when you choose to do the replacement is based on how much oil leakage you can tolerate.
I'm at 121K miles on my 93 W124, and during my latest trip to the dealer, the service advisor noted that the head gasket was leaking and should be replaced.
I think I saw the leak beginning about 20K miles ago, so it's a slow leak. Replacement is inevitable, and I'm saving up for the eventual task as we speak.
Consider that while the head is off, it's a good time to look at doing some other top-end reconditioning if the budget allows...
2009 ML350 (84K) - Family vehicle
2001 CLK430 Cabriolet (71K) - Wife's car
2005 BMW 645CI (124K) - My daily driver
2012 Mustang V6 (60K) - Daughter's car