Another clue. After I removed the head, when removing the intake valve from the #4 cylinder I noticed there was a tremendous amount of carbon (or crusty oil) build up on the backside of the valve and intake port. It was so bad it was almost blocked! This was not normal and I was convinced the valve may not have been seating properly due to build up and leaking by. Maybe this is an indication of the problem.

I would have thought this was caused by a bad valve stem seal. It shouldnt cause the valve to leak though.

As a kid, (back when Noah was building the ark) we used to place the head of gassers on their side & fill the inlet/exhaust ports with petrol, if the valves needed doing you would see the petrol leaking into the combustion chamber around the valve seats. I think the same would work with a diesel.
The motor in question here sounds like it has a valve or 2 not seating properly. The head is going to have to come off again any way.

__________________
Grumpy Old Diesel Owners Club group

I no longer question authority, I annoy authority. More effect, less effort....

1967 230-6 auto parts car. rust bucket.
1980 300D now parts car 800k miles
1984 300D 500k miles
1987 250td 160k miles English import
2001 jeep turbo diesel 130k miles
1998 jeep tdi ~ followed me home. Needs a turbo.
1968 Ford F750 truck. 6-354 diesel conversion.
Other toys ~J.D.,Cat & GM ~ mainly earth moving