This is/was my 1986 300SDL.

I cranked the motor over with the injector out to blow out any sitting fuel. Dipstick fluid not milky, just has black oil at the bottom and clear liquid higher up. couldn't smell anything disticntive.

It only ran for about 10 seconds after it started making noise, so if it is water, it probably didn't have a chance to mix up. Also, it doesn't seem like water could leak in there in the 500 feet I drove, when there was none in there before.

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1986 300 SDL, gray on black, #14 head, 180K miles
1982 300 CD, silver on palomino, 290K+ miles [sold]
1980 300 SD, white on palomino, 500K+ miles when retired [uncle's car - inspiration for the above]