Thanks to all who have been kind enough to offer me advise and suggestions on how to deal with my situation.

Well, from reading and thinking about situation I decided I must have managed to get something in the cylinder that should not be there and the only way to know for sure and to assess damage was to remove head. So I did that.

Piston, cylinder and head and valve seat where damaged. The damage was caused by the small breather hose that goes from the intake manifold to valve cover which has those two metal clamps. The clamps did the damage. It is apparent I was not careful enough when fit the head to the block. This is the first time I did a head gasket replacement, so anyone else who does one for the first time I'd have to recommend just removing that little breather hose when you fit the head to the block, I suspect the pros remove it or are just more careful.

I do have a parts car, 1992 300 E with about 15K less miles on it than the engine I ruined in the 1992 300 TE. So everything should be the same except for the tandem power steering pump on the TE which runs the self leveling system.

I'm wondering if the transmission for the E model is the same as the one for the TE.

Hopefully I can swap engines without screwing anything up. I'm not a professional mechanic but I've got a good bit of experience and feel pretty stupid for not being careful enough when I reintalled the head.