I haven't messed with it further, but I am still leaning toward another 616. My 84 wagon is in the shop now, surrounded by 240 engines. My son was laughing in there the other day that even though he was surrounded by lots of engines, they collectively represented still a pretty small amount of horsepower. At 17 he finds how to squeeze every ounce of power out of his 240.

I think the 240 will remain a 240. The correct year engine I picked up for $200 built oil pressure and a compression test showed all cylinders between 320 and 345. Now comes cleanup and component swap.
I am a little tempted to pull the pan and inspect a rod bearing or two, but with those compression numbers it is probably fine. Can I pull a rod cap without removing the upper oil pan?

You'd probably find the '78 engine has more power from not being filled up with EGR gunk over the years. Whip some conversion pencil plugs in and away you go.

Wikipedia says they upped the power rating after 78 from 64 to 71 hp by changing the prechamber design and camshaft.

I hope they are correct. There was a lot of carbon built up under the injectors. I will probably delete the egr and give it an italian tune up.

I’m willing to bet that a worn out 71HP 616 will be FAR less hp than a tight 64HP 616…

I am not following you. I thought those compression # I posted for the 71hp were pretty good, Especially for a dead cold engine that definitely has not been started in more than a decade.

Do those numbers look worn out to you?

Reusing An Old Engine
 

Yes, I highly recommend removing the lower sump for cleaning, no I don't recommend undoing the road bearings .

As mentioned, replace the original series typ glow plugs with the parallel ones, clean and adjust every thing you can and motor away happily .

I now have an 82 motor to go in so glowplugs and everything else matches. I got it on the engine stand today and started checking it out more closely. It looks like it has only about 3 degrees of chain stretch according to the cam alignment notch method. I have a dial indicator so I am going to try to use the 2mm lift method and see what that shows, but between the lack of stretch and the good compression numbers I think this might be a pretty good engine.
Also I pulled the transmission off of it and the clutch disk is OEM and has a date code of March 1982 on it. Original clutch sounds like a low mileage engine as well.

YAY !
 

There are still quite a few low mileage originals out there but getting hard to find as those that have them, consider them 'junky old cars' and often junk them when in need of any repairs or failure to pass safety inspection .

Dial indicator confirmed 3 degrees of stretch so I have an offset key on the way.
Yes, I am fortunate to have a few neighbors interested in these old Mercedes. The motor I am putting in was pulled from a pull-a-part by a neighbor in 2013 and has been in his shop ever since. I am giving him $200 and a manual transmission from a 78 in exchange for this engine and transmission combo.
Anyone know why I am having a hard time sourcing a lower oil cooler hose? I have a spare set, but they are OEM ones that have been pulled from other cars. I would like to put new ones on this one, especially considering that it appears the lower hose on the blown engine may have failed causing the thrown rod.

OM616 & 617 Oil Cooler Hoses
 

M-B discontinued one of them, there's some really detailed threads on making up your own using full circle band typ clams and 15MM hose, the hose you use is critical as Diesel contaminated motor oil attacks, softens and ruins the wrong hose very quickly .

Maybe take your old hoses to "Hose Man" franchise shop ? . there are myriad custom hose makers, ask at any heavy duty truck or construction equipment shop, they'll know the best local place to go .

I found a URO brand lower hose on fleabay. I am not sure why they don't show one on here or the other partshauz on the web.
Today was cleanup day for the engine going in. My parts washer was too close to the overhead crane not to try this, and it worked pretty well to get the bulk of the grime off.

Shop Notes
 

When I had my Indie. VW Shop I had the wonderful Gray Mills solvent tank, I used to put bare long block VW engines in it......

Your shop image looks quite like that shop ~ it was jammed with spars and tools and always busy .

I miss it dearly .

I am going to reuse the r-4 compressor from the car, but have no idea what oil is in it. Can I just dump it out and put fresh in or do I need to do some type of flush on the compressor?
I have some ac flush I plan to use on the hoses, but it seems harsh to flush the compressor itself. Supposedly the PO had done several thousand $$ in AC work shortly before the motor let loose and the compressor looks pretty new.

Do you know what refrigerant the PO had used? R12, R134? The oils are not compatible with each other and are specific to the refrigerant used. See if any fitting adapters were used on the hoses to indicate whether it had been converted. If the same type is used and the oil otherwise looks fine, no need to flush. It would be recommended to drain and measure the quantity from the compressor and compare to spec. for filled, could be under/over and the right oil charge is important to overall lubrication and cooling efficiency.

If you need to flush the compressor, attach the old barrier hoses to it, fill the low side with flush, hand turn the compressor until it comes out the other end, repeat a few times and then give it a good blast of compressed air to clear.

If you are going with R134, make sure that your barrier hoses are compatible, R12 hoses will weep and loose R134 over time. Many new hoses are built to R134 standards and are compatible for use of R12. If you have a hard time sourcing, a hydraulic/hose shop will be able to rebuild your fittings with suitable hose.

Get a new filter drier as the system has been open for a while and perform a long vacuum on it to test for leaks and boil off any residual moisture in the evap/condenser when you are ready to refill.