As long as you have these donor cars at hand and not only the motors, you will be able to come up with what you need. What would make it very frustrating project would be not having access to all the donor cars. If you get the engine from the 126, you will need other items from the turbo 123's.

Should be a eewarding project.

Yes, there was no change since putting in a new diaphragm. I will try to get a video in a few days. It is extreme, lots of white smoky gases. The car also smokes out the exhaust at idle and under full throttle. It's a thin bluish white smoke.

Have you done a valve adjustment on the car? And what weight and type of oil are you using?

Yes, twice (w/ 3k miles in between). 15w40.
This motor was from a 1980 300D that supposedly had 160k miles on it but that sat in a barn for a few months.
I've also done an MMO soak on it.
(the original motor threw two rods and blew a fist-size hole in the side of the block)

Where the exhaust valves tight and the lose on both adjustments? Or where the majority with in spec....I have been doing a valve adjustment every 500 miles....this last adjustment one valve was within spec....my oil consumption and blowby decreases every time...my valves were never adjusted...thus caked in carbon...slowly its getting beaten off...

This is not just because it needs a valve adjustment...

Such as the transmission. The w126 version won't work in the w123.

Read above, I'm using a W123 transmission

You will need to use the oil Filter Housing from a 123. The 126 has an electrical oil sender for gauge. The 123 has an oil line going to the gauge.

Iam not sure, but the oil pressure line to the Turbo may be different as to the angle/length where it bolts to the filter housing. so source the pressure line with the filter housing.

Charlie