I would pick up a W123 and rebuild the engine. Oh yea, that's right I remember, I did that last year with a '83 240D (117,xxx miles). Car cost $800 and I put about $800-900 in the rebuild. The pistons were the most expensive part at around $85/each. Did all the work myself except the actual machine shop work.
I'm not sure if the 300SDL engine can be re-sleeved or not but I know the W123 engines can be.

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Jim