Can anyone who has experience with this car please give me some advice on how to properly set the timing. I replaced the head gasket on this car, valve stem seals as well as the worn out timing chain, tensioner and guide which was missing some plastic fragments. I think that the chain might have jumped as I was removing the crankshaft bolt to take off the front cover so I just want to be 100% sure that the timing is where it should be before I finish putting everything together.

I replaced the head gasket on my '88 260e last weekend so i feel for you. I have the m103 sohc L6 engine - not sure if yours is the same or not.

You need to get everything set to TDC. For my engine there is a mark on the cam and rocker stand that should be aligned. The crankshaft 0 degree mark should then be aligned with the left edge of the crankshaft position sensor mounting plate when viewed from above. Mine was slightly off the mark to begin with but the car ran okay. I was careful that the chain didn't slip when I took off the head. Maybe the sensor mounting was moved (I had it off before) or the chain stretched or something. But the car ran great after I got it back together, and no coolant leak either.

If you can get your hands on a manual for your engine it should describe how to verify TDC.

Thanks for your reply. Yes, mine has the same engine as yours. I know there is a hole on the cam for alignment, do you know where on the rocker stand I should have this aligned with? I can't seem to find any alignment marks on it.