eh thats a risky situation. if its been seized its probabaly no good anymore, these blocks have a coating on the walls and once thats been ruined theres no recovering from it. assuming you could free it up, a compression test would more than likely reveal unfavorable results.
try finding a used engine to stick in it or like you said put the diesel in it. It can be done, but you may need some specific parts off an SD or SDL to make everything fit right. there's another member here who did one of these conversions already so maybe they would be able to help you with questions.

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1980 500SE/AMG Euro
1981 500SEL Euro
1982 380SEL
1983 300TD
1983 500SEC/AMG Euro
1984 500SEC
1984 300TD Euro
1986 190E 2.3-16
1986 190E 2.3
1987 300D
1997 C36 AMG
2003 C320T 4matic

past: 1969 280SE 4.5 | 1978 240D | 1978 300D | 1981 300SD | 1981 300SD | 1982 300CD | 1983 300CD | 1983 300SD | 1983 380SEC | 1984 300D | 1984 300D | 1984 300TD | 1984 500SEL | 1984 300SD | 1985 300D | 1986 300E | 1986 560SEL | 1986 560SEL/Carat | 1987 560SEC | 1991 300D 2.5 | 2006 R350