85 300 SD Smoke Problem

[85Piece]

Many thanks to all who wrote back yesterday, lots of friendly and knowledgeable people around here!

OK, so here's my problem, I have a 1985 300 SD which is not passing inspection because, so they tell me, there is "too much smoke" (How much is "too much"? They were unable to tell me this).
The car does not appear to be burning oil unduly, or leaking coolant into the oil, or vice versa. I added some biobor and diesel kleen to the tank, gave it an Italian tune up, changed the oil and fuel filters, and it's still smoking. I would say the smoke is bluish/grey/white, if that helps, but definitely not black-black.
Here's my question: it has been suggested I do a valve adjustment and an ALDA service (clean the banjo bolt). Seems to me there is the possibility it is a head gasket issue, in which case it has been suggested to me that it would be cheaper to swap in a rebuilt engine than to replace the head gasket. If the valve job doesn't fix the problem, and I have to swap the engine, then the valve job would be for nought, right? The valve job seems like a big enough deal that one wouldn't want to do it if there are any doubts that that's going to take care of the problem.
So, what's the quickest, cheapest, most reliable (I know, wishful thinking here, probably) way to diagnose whether the issue is the head gasket
or something else?
The compression seems OK. Any ideas or suggestions would be most appreciated!
Jim