I had a similar thing happen after I had the head redone on mine. First startup had a bit of smoke from a couple of the intake ports, but quickly went away. I chalked it up to either crap on the valve seats/faces or the valve stems dragging in the guides until they got adequate oil.

Almost all the engine noise when running with an open manifold like you have it is induction noise. With the IM on and the exhaust still open, it won't be much different than with the exhaust on. When I was getting mine running and doing test drives out in the county, I ran it with only the downpipe connected and it really wasn't bad at all. Had some droning, but I'd imagine if it were piped straight out the back you wouldn't notice any difference.

Not sure about that hot-air intake though. No problem with the K&N, but having it right there by the exhaust manifold is less than ideal.

__________________
Current stable:
1995 E320 157K (Nancy)
1983 500SL 125K (SLoL)

Gone but not forgotten:
1986 300SDL (RIP)
1991 350SD
1991 560SEL
1990 560SEL
1986 500SEL Euro (Rusted to nothing at 47K!)

Gone and wanting to forget:
1985 524TD 167K (TotalDumpster™) [Definitely NOT a Benz]