With 180,000 miles you might want to check the chain for stretch and either install an offset Woodruff key if the valve timing is off and have the injection timing adjusted or put a new chain in and then check/adjust timing. Smoking can be a consequence of timing being off, as can the nailing you hear.

Sounds like a great find for you and Mertle.

Jim

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Own:
1986 Euro 190E 2.3-16 (291,000 miles),
1998 E300D TurboDiesel, 231,000 miles -purchased with 45,000,
1988 300E 5-speed 252,000 miles,
1983 240D 4-speed, purchased w/136,000, now with 222,000 miles.
2009 ML320CDI Bluetec, 89,000 miles

Owned:
1971 220D (250,000 miles plus, sold to father-in-law),
1975 240D (245,000 miles - died of body rot),
1991 350SD (176,560 miles, weakest Benz I have owned),
1999 C230 Sport (45,400 miles),
1982 240D (321,000 miles, put to sleep)

Ive thought about replacing the timing chain as well. I will try those Monarch injector nozzles and see if that does the trick. If it doesnt, then I know my next move will be a timing chain and set the timing. You know what's really sad guys? I find myself wanting to drive my old 83 Mercedes more than my 05 Cadillac. To me it just seems that my Caddy lacks a soul. Its a nice car and what not, but I guess its like dating women, some can be very nice looking, but theres just no connection, then one day you meet a women and "click" it all comes together...lol. So far, I have gotten several people to turn their heads at my 240D, I am not sure if its the looks, or the smoke? LOL

A set of four Monark nozzles from C Sean Watts should run about $80. Don't skip having them pop tested and balanced.

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1979 240D- 316K miles - VGT Turbo, Intercooler, Stick Shift, Many Other Mods - Daily Driver

1982 300SD - 232K miles - Wife's Daily Driver

1986 560SL - Wife's red speed machine