You will need to determine if the oil is from the turbo or from the blowby tube. You can disconnect the blowby tube or hose for a short time (you will know immediately if you have excessive blowby!) and then check the turbo for oil.

If you have oil leakage, the bearings in the turbo are shot, but if it still spins easily without any roughness, new bearings and seals will fix it -- about $400 at any diesel injection/turbo service shop. They aren't rare these days, and MB uses common manufacturers (Garret, for instace), so parts are readily available.

If you "just drive the hell out of it" with leaking seals, you will quickly wear the bearing sleeve to the point the body has to be reamed and a new sleeve installed -- this isn't always possible as significant bearing wear usually means the housing is munched, too. If there is any axial play or roughness in rotation, you probably need at least a cartridge ($750 or so) or a new turbo.

Fix it while it is cheap! This isn't a DIY project -- you have no way to check clearance, balance on something that can easily run 100,000 rpm, etc. Let a shop do it.

And please please please DON'T put your hand over the intake to feel the suction -- if you slip and get a finger down in there, the turbo will eat it, and as much more of your hand it pulls in before the tendons tear loose in your arm or it stops. This is NOT funny, you can easily lose your hand -- the turbo will be running about 5-10,000 rpm if you blip the throttle, and weighs about two pounds. Terrific momentum. Please think safety -- a turbo isn't a little battery fan or a toy.

Peter

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1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!