First of all, X200 on the rust thing. Expensive to fix and even harder to keep it gone once it's started.

If I found a perfect 240D I'd do the conversion to put a 300D turbo on the engine - that OM616 really need some HP and the turbo is a big step in the right direction. Someone on here has done this and my last remaining memory cell is saying that they were offering a kit to fit the 5 cylinder intake on the 4 cylinder head. Then I'd get an injection pump from Dieselmeken in Sweden and a set of fresh injectors from Greazzer and drive the darn thing. I'm guessing you could get a realistic 140-150 HP out of that combo and it would be smooth, reliable, a peppy enough not to be a hazard in traffic.

The rest is fixable. These are, as noted, pretty simple cars that take a lot of abuse and are a comfortable driver.

Dan