Two things on the milage:
1 -- get a new, OEM thermostat. The engine stays in startup mode (rich) until the temp gets to 150F, and you will never get there in cool weather and a bad thermostat. I had the same problem, along with overheating. Seems the thermostat won't either close tight OR open all the way when shot.
2 -- find someone with a good CO analyser and some time -- look up Steve Brotherton's post on setting the CO and timing properly. If you don't have the mixtuer (CO) set right, these things can be real gas hogs.
The fact that you get good milage (and 17 mpg is good!) on the highway makes me think you need a new thermostat. It will reduce the high idle time, too -- mine heats up in a couple of minutes now.
1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!