Welcome to the forum! My first reaction is to post your questions on the specific Diesel section of this site
but since I am a former owner of several diesels lets see what we can do to help:
>Previous owner had an homemade overflow tank attached. Took it off since it was not supposed to have one.
-I agree that taking it off, at least long-term was the right move.
>Started overheating right after that, so far changed the radiator cap.
-Q: are you sure of the cap? These cars are very sensitive to having the correct temperature rating for the cap.
>Where is the thermostat? is it easy to change? how do i know whether it is the water pump or not?
-A good general rule of thumb for the water pumps is: leaking, if it is leaking (common indication) otherwise they are quite reliable as long as the belt isn't over tightened and you run preferably MBZ coolant (best for these cars)
-After the car is running and it has gotten warm, shut it off. Use your hand and move it around the radiator. What you are looking for are cold spots. These would indicate a clogged radiator.
-One way you can help with over heating is to put the heater on full. The heater will wick away some of the engine heat.
-Have you checked your coolant. Benzes, generally prefer a 50/50 water to MBZ coolant mix.
>can i install a frame bushing on my own? got a lot of questions don't i?
Frame bushing? Be more specific, what frame bushing?
>Brakes are also pretty bad, can i determine what's wrong with them, fluid is fine, no air in the line..but very hard when pressed...
-Don't mess with driving a car with bad brakes.
-First off, find out if the front and rears have any lining left on the brake pads. You might have to pull a front tire and check the disk brake pads. Do this and be glad you did. Pull a rear one and do the same. Don't mess with bad brakes.
-It could be that IF your linings are good, then it is the brake booster that is making seem like it is hard to depress. Disk brakes without the booster are a bear to stop a car.
-Check out the booster, the big round thing that your master cylinder is attached to. It gets its vacuum from a pump on the engine. Follow the vacuum line from the booster to the front of the engine. The vacuum pump, if I recall correctly on your car is mounted (as you face the engine) off to the right.
> i am a student with very limited finances, cannot afford to take to a shop... today i had to drive the car 15 miles almost all the way in the red, do you think i hurt the the car by doing that?...what temperature is normal for this car?
-I would suggest not letting the car, let alone any car get into the red. It is hard to say, but with winter temperatures right now, you are probably OK.
If you can find a mechanic who has some Mercedes in his yard, you may be able to explain that you are a student of limited means and need some help. You would be amazed what people will do when asked sincerely for help.
Also check this thread out that was just posted today!
Hope this helps, keep us updated-