I have a '91 300D 2.5T (w124.128, 602.962). I get the same mileage, about 32.5 mpg, on the highway at around 80 mph.

Congratulations. Don't know about the timing/smoking issue, but sounds like you have a winner.

__________________
'91 300D 2.5 Turbo 330K
'00 VW TDI Golf, 190K
'67 BMW R50/2
'73 Norton Commando Interstate