I agree that you need to both filter and dewater your oil way better. There are many ways to to this, some cheaper than others, but sheets and denim are not the final answer. Google cold upflow filtering. I also agree that you need new fuel filters in your car.
A single tank conversion is not the best way to go. In my opinion the only long term way to burn straight veggie oil is in a heated, two-tank system.
Check out the Greasecar site, they have a lot of good info there.

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-Louis
The Hills of Western Mass.
1985 300TD 327,777 sold to JB3
1985 300D 218,xxx
1987 190D 5 speed 338,xxx