Short version:

#4 sleeve on a 260,000 mile OMM617.951 is pushed 14 thousandths too far into the block. It has been this way for at least 3,500 miles but eventually an unfortunate major overheating caused the head gasket to blow around it. Milling the head down would leave the piston overlap at .042", which is 7 thousandths over the MB tolerance. Options are:

A: Replace head gasket for an additional $590 and hope it lasts for a long time.

B: New engine for around $1000 (seems the best to me, although there are some ifs involved)

C: Mill down block as much as possible and cut the gap to 7 thousandths and new head gasket. Don't know how much this would cost.

What do you guys think?

Longer Version:

I have a 1984 300SD with 260,000 miles. Not that long ago I was driving it and the engine temperature gauge stopped working. I didn't thing too much of it but a few hundred miles later the thermostat stuck and it started overheating. I didn't know this was happening till the coolant hose broke and it started smelling like burning coolant in the car. long story short, massively overheated and the head gasket ended up blown.

I took it to a shop and they tore into it. They discovered a relatively new head gasket, although how new he wasn't sure. I had put at least 3,500 mile on it is all I know. They also discovered that the #4 piston sleeve was pushed in to the block 0.014" too far. Apparently in a past life this sleeve had been installed incorrectly, or somehow pushed in by something else. My mechanic and I couldn't really figure out how that could have happened. Getting the top resurfaced down 14 thousandths so that the sleeve is flush again will put the piston overlap 7 thousandths over MB's specified range of acceptable values so that isn't really an option. I'm $300 into the head gasket replacement already. My options are below:

1: continue with the head gasket for another $590 and hope for the best. Who knows how long it would last without overheating the engine again?

2: I may have a line on another engine for $1100 with 100,000 miles less on it then mine. I could then possibly sell my current engine's turbo and manifold locally for at least $300 and install the new engine. This seems like my best option, and I may be able to find someone who could help me install it myself thereby saving shop time. This seems like the best option

3: Mill the block down 7 thousandths for who knows how much more money and do #1

Anyone have any experience with this? What do you think I should do?