Thanks for all these comments.

@87tdwagon: I was wondering about all that oil spray too. I changed the valve cover gasket recently when I adjusted the valves and I cleaned the valve cover then. It was also covered with oil spray, especially around the oil cap, so the current photo might be misleading as to where that oil spray is coming from. But if that spray is coming from some area near the EGR valve...why would we see oil there at all unless a seal in the turbo was bad?

Regarding the soapy water, I'm nervous some of that might find its way into the intake and that would be catastrophic? Am I worrying about nothing?

@ykobayashi I haven't noticed a change in the car's performance, and from my limited knowledge it seems OK for a W123 diesel. The alda and friends were long ago disabled so the intake manifold pressure line is plugged up. I attached a gauge to it and saw some boost while revving in park but I haven't driven around the block yet to see what kind of boost I'm really getting under load. The last time I did this it was around 9psi.

The 8x slow video I shared doesn't show the impeller hitting the housing so I assume even in the worst case the turbo is rebuildable? With possibly more than 300K on the turbo do I just need to rebuild it regardless? I've read you can have a runaway engine if the oil seals on the turbo get too bad. I'm worried about getting that turbo out if I need to do that --- seems that can be a bit of a bear.

This weekend I had to give my work with "The Red Baron" a bit of a rest. My wife was wondering where I disappeared and besides the car and I were getting frustrated with each other. I hope to take a 2nd (or rather 99th) look during the next few days after work before I leave town for the rest of the week. This used to be my daily driver and my goal is to return it to be that again.

Thank you everybody. I appreciate the help and encouragement. I'll get to the bottom of this.