Jim,

The head corrosion problem I ran into was my 300E which has an aluminum head. That would be near impossible on this engine.

It appears that pulling the head is indeed the next step. But you obviously have already figured that out. It could be the head gasket if the engine overheated. If so make sure you check the head for straightness.

If you don't see evidence of a blown head gasket, try to inspect everything as closely as you can with the naked eye. If that doesn't turn anything up, the machine shop can pressure check the head. The only extra head I have is an early loop type, and it's on the worn out engine that's still in my 240D, it will be awhile before I get to taking it off. You can probably find a casting without too much trouble if you need one.

If the engine did overheat, the blown headgasket may very well be all that's wrong. Of course, you know how that goes, once you take it apart you shift into the phase of "well, while I have it apart......"

Keep us posted,