If you are intent on raising compression, can you find out if the Euro model with higher compression achieves it with a different piston top or a different combustion chamber. If they do it with the head, it looks like you need to find out how much can be milled off the head with no problems.
Also, I saw a camshaft advertised which was made by Schrick. It claimed 12 to 15 horsepower increase. No meaningful specs or other information were given. I'm sure that you know that it does this by pushing the torque peak to a higer RPM which increases the calculated result. In some cases, this will actually slightly decrease the maximum torque, but since the torque peak is shifted to a higher RPM the calculated HP figure increases. As I recall from a table in a David Vizard book I have at home, increasing the compression by about a half point will theoretically increase power by about .5%, so that would give another horsepower or so. I will check that table when I get home tonight.
The intake ports of American car cylinder heads have a lot of room for improvement with minor work with a hand grinder. I have never seen the intake ports on an M103 head. If they are like an old gas MB cylinder head I rebuilt a number of years ago, they're pretty decent as is, not much room for improvement. But there may be some things you could do with the ports and valves while the head is off. If you can achieve the same flow increase with port work as you could the camshaft, the port work is a much better increase because it doesn't have the ill effects of more cam. If you can increase port flow AND increase the timing a little, you MIGHT get to your desired 20 HP increase with all this.
Lots of IF's.
One concern I have about doing all this without freshening up the cylinders and rings, is that you will be increasing cylinder pressure. This could start causing problems with a high mileage cylinder/piston/ring combination. It very well could start blowing oil like crazy.
Your 280E stick shift project sounded great. Anything that gives me a manual transmission is okay with me.
'84 Euro 240D, 516K miles
'88 300E 5 Speed
'81 300D Daughter's Car
Over 800,000 miles in