I replaced the head gasket on my '88 260e, which is the same M103 engine. My original head bolts had washers, the replacement bolts were the newer washerless flanged style.

First step is to clean out the bolt holes with a q-tip and get all the oil and coolant out of them. Try the bolts in the holes while the head is off to make sure they thread in okay. I was surprised amount of clearance (looseness) the bolts had (especially for a German car). If the bolt doesn't thread in smoothly, run a tap in the hole to clean it.

Lightly oil the bolts with clean motor oil. If you are using a washer, put oil between the bolt head and washer. Do NOT use oil on the bolt flange or washer that contacts the aluminum head.

The bolts are torqued in three stages: first to 52 ft-lbs, secondly 90 degrees (1/4 turn), and lastly another 90 degrees. You start with the center bolt between cyl 3 and 4, then the one across from it, then the one between cyl 2 and 3, and 4 and 5...basically working your way out from the center. One thing I was not sure of is if you should bring all the bolts right to 52 ft-lbs or proceed in steps up to 52. I decided to take the middle road and snug them all up to 10 ft-lbs before taking them to 52. At this point I used white-out to paint a mark on the firewall side of each bolt head for angle-torquing. The paint helps keep track of which bolts have been turned and how far. Do NOT rely on your memory because it is very easy to lose track and giving an extra 90 degrees might break something.

Try to turn each bolt in a smooth 90 degree sweep without stopping. The second 90 degrees is pretty tight. You will work up a sweat. I thought I smelled aluminum burning as I torqued the bolts.

My car went together well and no more coolant leak from the head gasket.

Good luck!