I too had monsterous amounts of smoke coming out of my 92 300D. It made no sense. There was no oil in the coolant overflow. No foamy mess on the oil dip stick. I wasn't using oil or water. I did need to add about a quart of transmision fluid every two weeks. The smoke seemed to come only at highway speeds when trying to merge onto the interstate. Then the smoke coming out was so dense, I almost couldn't see the car behind me. When I let off the gas, the smoke cleared up. (ok, I never could tell if it was white, blue, or black. It could have been purple....I was only concerned with the quantity!)

So thinking I've blown a head gasket and not really wanting to attempt it myself, I took it to my mechanic I use for the hard stuff. He quickly told me I had a blown modulator gasket and the engine was sucking out the tranny fluid. It doesn't burn very well so the cause of the smoke was unmasked. So instead of a blown head gasket or a trashed turbo or a crack in the block it was a simple modulator. What should have given me the clue it was none of those was that the smoke was intermittent. Constant smoke would have suggested the other was the problem.
As a side note, my tranny was giving me really hard shifts between 1st and 2nd gear. No more!
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