I am going to check the valve adjustment next.....any recommendations on where to get the special tools required for the valve adjustment ?

Yes, it does smoke quite a bit when first started, then the smoke does seem to go away as you mentioned.

Do you believe that an increase in compression with oil added to the cylinder could be due to the valve problems only ? The reason I ask is because I know that this vehicle has been extremely well maintained....I have receipts for all oil changes etc.....it just seems surprising to me that the rings would/could go bad with such low mileage.

Thanks

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1987 560SL - 95K
1996 E300D - 183K
1997 E300D - 162K
1982 240D - 160K