Steve,

I recently had a similar problem with a 98 e300 turbodiesel. The car I am working on had a oil leak and oil in the injector wells. Some of the oil would then seep into the prechambers causing blue smoke during warmup.

After quite a bit of disassembly and assembly, I pulled the cam towers and discovered that the seals that go on top of the head and under the cam towers were never installed. I am not sure if your motor has these seals but it might be worth a look. It was not all that much work to pull the cams and cam towers.

John