The car in question is an '84 300D with 186k miles. I have noticed some very small amounts of oil in the driveway that seem to develop just after the car is parked (i.e. no pools from constant drippage while parked).

I had the oil changed recently (maybe 1500-2000 miles ago) and haven't driven much recently.

Well, I went to visit friends an hour and a half away this weekend. On my return trip, I noticed the engine losing power (i.e I was going 65 and it dropped a bit, struggling to go to 60). I noticed the thermostat rising and pulled over immediately. As soon as I released the accelerator, the engine stalled. I lifted the hood and there was oil all over the top of the valve cover and near the injectors

I checked the dipstick and there was nothing, nada...

I pretty much had conceded by this point that the engine was cooked, but decided to put some motor oil in to see if it would respond. I put in 4 gallons and let it settle while the car was towed to a friend's house.

I got the car off the truck and turned it over... it idled a little rougher than usual, and I was unable to see any oil gushing/spraying from the engine. This has given me a little hope...

Here's my question... my friends got me away from the car and out for a walk to cool down a bit. I decided to bus it back home and return with a bunch o' tools later in the week to diagnose, etc. Am I deluding myself? Have I cracked a block, blown a head gasket, etc.? How am I going to figure this out? My plan is to clean the engine, get oil back in it, turn it over (looking for oil leaks), and if all is good see whether it is getting good compression by driving it a little... yes, no, maybe, other?