If the car has the original head there is a 99% probability that the head is cracked. If so the only real fix is a new head. The heads on these engines are very susceptible to cracking if they overheat and it sounds like this one has been overheated at least once. Later designs you may find on a replacement head are a bit more robust. The '87s are great cars though and if you can buy it cheap enough and the rest of the car is in good shape it may be worth pursuing.

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LRG
1987 300D Turbo 175K
2006 Toyota Prius, efficent but no soul
1985 300 TDT(130K miles of trouble free motoring)now sold