The usual problem with air is bad heater core circulation and consequent lack of heat, but I suppose you could also get airlocking at the thermostat. To bleed, you just open up the heater hose connection at the heater end of the pipe and bleed the air out while adding coolant to the rad to keep it full. A hassle because of the lack of room with the hood not opening far enough.

Tobst:

Make SURE you have good water circulation! If the impeller of the water pump is bad, or someone overtightened the water pump belts and pull it forward, you won't get decent circulation, and the engine gets HOT. Check the bottom of the rad when hot -- if it isn't too hot to hold your hand on, you have poor circulation. A thermostat that has failed will do this too, and remember, you can get a bad one (or the wrong one) in the box new....

I don't believe the overheating and the exhaust are related.

Peter

__________________
1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!