From my readings of other threads, I will check:
1) pull exhaust manifold to see if oil is coming from a specific cylinder (leaking head gasket).
2) vaccum pump cross-over tube for oil (bad diaphram).
3) valve adjustments.

I am not positive that my valve seals are bad, they just seem to be suspect and an inexpensive option for me now. Here's what I've got: "83 240D I recently purchased is burning 1 qt./50 miles ( I know...... EXTREMELY EXCESSIVE!), but it does seem to have improved since I've been driving it on a regular basis. It had sat for nearly 7 years before I bought it. Blue/white smoke coming from exhaust pipe, worst during warm-up but not "clouds" of it and can see a trail while driving. Starting when cold is no problem, within 3 seconds it jumps to life. So I'm thinking I have good compression and the valves & rings are in desent shape. Removing the tube between the air/oil separator to oil pan shows little blow-by. Removing the breather hose from the valve cover shows exessive blow-by. So my limited diesel engine experience is pointing me in this direction.
Any other suggestions/comments ARE welcome!

Update: 3/10/08
I have now spoken to 3 private Mercedes shop owners and all three say valve seals would not be a likely culprit with the problems I'm seeing. Two of them said "just keep oiling it and use it around town until it dies". Third one thought most likely the "softer metal cylinder sleeve has been worn too much by the rings and not worth doing anything about it" (which is probably what the first two were thinking also, just didn't say it). He said that Mercedes engines were lasting way too long and they saw they weren't going to make money, so they installed a "softer metal cylinder sleeve" which would eventually wear-out.
Anyone with thoughts on this? Are there "cylinder sleeves" in a '83 240D 616.912 engine? Can they be replaced along with a ring job? Can the "cylinder sleeves" be pulled and larger rings installed?

UPDATE: 4/10/08
After some digging while pulling the manifold, I found the valve stems inside where very wet with oil, probably bad valve guides. Having the head overhauled now. The cylinders are very clean, no visible damage or wear. As you suggested, could be a stuck wiper ring also. I will be adding Marvels Mystery Oil to crankcase to see if they'll loosen up. I've been told by a private Mercedes shop that on the '83 240D engine, the rings rarely go bad and it's most likely the cylinder sleeve ( a softer metal) that wears out.

At any rate, I'm hoping the head overhaul and oil additive will do the trick to at least get my oil mpg above the diesel mpg


UPDATE: 5/17/08
Cylinder head was overhauled and all four valve guides were worn (least of which was .060 out of limits). Had the valve seats redone, everything else was good. Now my oil consumption went from 6-7 qts. in 170 miles to 1-2 qts. Haven't had much chance to run it in, but I'm thinking with the Marvels in with the oil will loosen up the rings to get my oil consumption down even more.
I will add, with the new guides and valve seats redone, I do notice improved acceleration (if that's possible with a 240D...).
I thank everyone for their input, what a great site!

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Pete240D
'83 240D