I think you're right!

All this time I assumed the clear lines were coolant lines, but I was wrong. They glow in the dark like there's no tomorrow (after I put a UV dye in the coolant), so I think coolant gets mixed with diesel in the heat exchanger, so I'll order it and replace along with GPs.

Thanks! I think I'm glad I didn't try the radiator stop leak thing. Will go with this solution, possibly this coming weekend.

This is the picture that clued me in - found on another forum, showing a black fuel line going into the heat exchanger. The clear line that comes out of it is fuel, and since it's glowing under UV light, it must be getting mixed with coolant when getting heated up. This explains why my coolant level doesn't go down on long trips (engine is hot), but goes down a lot when I have multiple cold starts.
https://www.dropbox.com/s/staorrvz3pebqeq/Mercedes%20Fuel%20Line.jpg

Update:
Aug 17 - Replaced fuel preheater (and gasket), glow plugs and fuel filter.

I started with the glow plugs, following the DIY posted in the forum (thanks to the author BTW - he did a wonderful job).

5 out of 6 came out fairly easily, partly because I made sure to heat up the engine prior to the repair. GP #2 took forever, but with patience and prayer it came out eventually.

The reamer tool (ordered from Hazet) was my best friend. I extracted quite a bit of carbon from each cylinder. It was really hard.

Next I went after the fuel preheater. Looking at how it was built, I still can't explain how it was mixing coolant with fuel. All I know is that the fuel coming out of it was contaminated.

The fuel filter was easy to replace. The new one came with 2 O-rings which was good since one of the old ones was damaged (possibly by coolant?)

Took forever to start the car, even though I filled the new filter with fuel.

Since then, I have not seen any traces of white smoke coming out of the exhaust. Coolant level is stable after 2 days; will keep an eye on it.

Thanks everyone for all the help!

Next, I'll need help finding out the correct part# for the front shocks, based on my VIN. Unfortunately I can't access EPC since I live in Canada. Any suggestions/thoughts?

Thanks and have a great day,
Tudor

It would be best to get rid of that fuel heater if your weather is usually warm.

__________________
2012 BMW X5 (Beef + Granite suspension model)

1995 E300D - The original humming machine (consumed by Flood 2017)
2000 E320 - The evolution (consumed by flood 2017)

Wouldn't that be nice; I live in Canada though, so I need a fuel heater. I considered getting an electric one, but eventually decided to go with OEM. It should last a while.