Thanks for the response. I can move cam a tiny bit till the chain gets tight, maybe 1 degree. Transmission is not seized.
Previous owner said engine seized day after oil change at a quick lube place. Oil is about an inch over full mark on dipstick but I don't see how this could seize engine.
I plan to pull vacuum pump, oil pan and injector pump next.

Pulling the oil pan would allow the main and rod bearings to be inspected. Mark and keep the bearing caps in order if you remove them. Overfilling the oil can allow the crankshaft to strike the oil causing it to foam. The foam will get pumped through instead of an oil that has not been aerated.

Keep us posted and good luck!!!

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"Rudeness is a weak man's imitation of strength" - Eric Hoffer

The foaming problems possible with really overfilling come in two modes...
First that pumping air along with oil can reduce the actual amount of oil and the pressure it arrives at the bearings.
Second that oxygen mixed into the oil will reduce its ability to lubricate the bearings. They have calculated the ' half life ' of the oil depending both on the temperature it gets to and the amount of oxygen incorporated.. This can happen with transmission oil also... even without overfilling... procedures like having to rock the car back and forth to get out of a hole by moving repeatedly from reverse to forward can reduce the effective life of the trans fluid to a very short time... enough that it should be changed as soon as possible afterwards..
There are charts where the half life , at temperature increments above a certain temperature, is reduced are shown.

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1980 240d ,

chain elongation, cam marks reference:
http://www.peachparts.com/shopforum/diesel-discussion/10414-help-i-need-check-stretch.html

http://www.peachparts.com/shopforum/diesel-discussion/305365-9-degrees-chain-stretch.html

evap fin cleaning:

http://www.peachparts.com/shopforum/diesel-discussion/156207-photo-step-step-post-showing-w123-evaporator-removal-1983-240d-1982-300td.html?highlight=evaporator

A/C thread

http://www.peachparts.com/shopforum/diesel-discussion/297462-c-recommendations-mb-vehicles.html

Important to know if engine just seized sitting a long time. Or it seized while running.

Seized while running just put your other engine in. Simply put seized while running will usually mean really serious work. Now seized while sitting will not usually be too bad to get running again usually.

There are no absolute fixed rules in the above statements. Just in general that is the way it usually goes.

Your observed oil level means nothing as the first thing someone would do if the engine oil was observed low after an engine quit. Would be to add oil.

If you can talk to the last owner might help. They have nothing to loose by being honest at this point.