I swear most of us 16V owners think alike. I too would love to have a GS400 and was keeping an eye out for good used one. But at $25k+ for a decent one with lower mileage, the price of admission is a bit step. There was another member on this board a year or so back who sold his 16V and traded up to a higher mileage GS400 and loved it. They are great cars, but cetainly don`t handle like a 16V. The 16V`s out there are all getting older and need more and more maintenance. There is something to be said about those bullit proof Japanese products. My problem with the GS400`s is I see one on every corner. The 16V`s are pretty rare.
A compression test is fine. But a leak down test can isolate where the problem is. You need a compressor. Put the cylinder at TDC and pressurize the cylinder at a set rate, usually around 100 psi. The guage will tell you how much air your losing. Anything over 10% is usually cause for concern. You listen to where the air is escaping, oil cap = worn rings, muffler or intake = valves. Make sure your valves are correctly adjusted.
If I were you I would just take a compression reading and if they are in spec, around 180 psi?, then just fix the current problem and run it or sell it.
For $2k I would consider, but you`re on the other side of the country. Don`t get discouraged. I know I felt like throwing in the towel a few times on mine. But I look at it as a learning experience. And from this board I have learned alot. And as Dave said, I too have replaced and taken apart almost every part on this dang car.
What else can you buy for your money that is as fun to drive and safe?