Been there, done that!
I thoght the head gasket had blown on my 103 engine. I still thought so after pulling the head and taking it to the shop. Luckily the shop I took it to was capable of welding up an aluminum head.
The problem turned out to be corrosion between the water jacket and the combustion chamber. He welded it up, did a valve job, checked the straightness. I put it back on about 55,000 miles ago and the engine has been flawless since except for ignition problems which have nothing to do with the guts of the engine.
Note! engatworks cylinder head job was on a 320 which has an M104 engine instead. On that engine, it is indeed easiest to disconnect everything from the intake manifold and remove it with the head.
On the M103, however, I found it much easier to leave the manifold in place and pull only the head. You will have to get to a few manifold bolts from underneath, but with a few extensions it is absolutely no problem. I think this method is superior because you don't risk breaking all the old brittle electrical and vacuum connections.
It really does sound as if you have a situation like mine. I would recommend that you move the car into place where you plan on doing the work and draining the oil and cooling system as soon as possible.
When mine blew, it was only a couple of days before I had to go to Europe for a 3 week business trip. It sat there, unbeknownst to me, with water in the oil. When I started it back up a number of weeks later, the oil already had looked like chocolate milk. I ran the engine only a minute or so and drained the oil and changed the filter. I then ran it down the road and back and changed it again. After that, I ran it to the office and back and drained it hot and overnight. The next oil and filter change was only about 1,000 miles later which put me back on my normal schedule and it was finally clean. The rust in the cylinders did no harm at all, but it sure did worry me.
The engine now goes 3,300 miles between oil changes and the oil barely goes down on the stick in that time.
So, pull the head and take it to a machine shop that can pressure test it and weld it up if necessary.
If you have never done this on an M103, and it sounds like you haven't, keep posting your questions here and we will get you through it.
There are several little tricks you will need to know such as how to seal the upper timing cover, beware of the small valve lifter cups and how to deal with the ratcheting timing chain tensioner without breaking something.
Once you start taking it apart, post here often and let us know how it is going.