You are on the right track with your analysis questions. I would be doing the same. If you look to get a used one from someone you should be able to run a compression test even out of the car with a battery.
-find out whether the engine has had a head job .... cylinder head gasket and/or valve guides and seals.
-depending on the damage replacing the damaged parts maybe the way to go.
I a way I have been there and one that - do become a student of the subject as you are doing. There are two direct benefits: You are ensured of making the right decision AND you always learn something in the process that helps later on.
Keep us posted, we are pulling for you.
'03 E320 Wagon-Sold
'95 E320 Wagon-Went to Ex
'93 190E 2.6-Wrecked
'91 300E-Went to Ex
'65 911 Coupe (#302580)