Thanks again for all the great advice. Here is the "followup/conclusion" post. I bought a new VDO pressure sender via peachparts and decided to try that first. As an aside, it didn't come with a crush washer, which was a bit annoying. I jacked the car and located the sender from underneath, but was unable to get it to budge. I have a short MB 17mm wrench, which I could get onto the sender, but there was no room to turn it, no matter what I tried. I don't know about you, but I find these sorts of things rather frustrating. I considered cutting down a cheap 17 mm wrench, but didn't want to spend the time and effort. Fortunately for me, I found post #10 from Chris_87_300D in this thread which saved my sanity:
http://www.peachparts.com/shopforum/diesel-discussion/162412-603-oil-pressure-sending-unit.html
It gives simple instructions of what to do to access the sender from above, and it really was easy. He says it takes him 30 min, but it probably took me an hour. Most of that time was trying to remove the washer fluid reservoir for the first time. Those plugs were very "stuck." Ironic that removing a water bottle was the most difficult part of the job.
The old sender had something physically broken inside it (it rattled). I used a overpriced crush washer from a chain car-parts store and the new sender installed easily. The wire connector has broken hooks/fasteners, so I just crimped the metal sleeve a bit and hope it holds.
I also changed the o-rings on the center bolt through the oil filter, in case they needed it. I went with 6 mm on the lower one and 7 mm on the slightly higher one (I see there is some discussion on those sizes). And I put in a new plastic fuel filter and replaced a few fuel lines that needed it. I filled the plastic fuel filter with diesel purge, and the car started right up. No problems with priming. After 5 seconds, oil pressure pegged at 3. Yea!!! Once warm, it came down to 2. Yea!! It was a small victory, but a victory none-the-less. Thanks again.