I have an M103 in my 300se with a similar puff of smoke from the breather hose. Not saying it's suppposed to happen but with engines as worn as these it is inevitable. I assume that's why the vent hose was installed. If your compression checks ok then it's likely not a big problem.

I also have a similar rough idle problem. I think eveyone deals with it. I've checked all of the electrical components in the CIS-E system and all seem to test out fine. At one point I pulled the connector off the cold start injector thinking it was the culpret. No change. Yesterday I actually removed the fuel line to it and capped it at the fuel dristributer. Big change. Still slight roughness but a significant improvement. Sitting at a stop light you almost can't tell it's running. My assumption is that the cold start injector is leaking under pressure. I'll replace it before the cold weather sets in.