Larry the suspense is killing me!
While I await the arrival of my family for Thanksgiving dinner, I would like to suggest a few things that I might do. With compression as low as you say and the timing mark off as much as you say(one tooth=18 degrees)thats a lot. If it is off one tooth, the pistons will strike the valves at high speed(60mph);At two teeth,something has to give and I think the engine would have jammed and you would not be able to turn the engine over.
I would re-align the marks on the camshaft according to specs. Turn the engine over at the crankshaft to TDC. Make sure the cam sprocket marks line up. With number one piston up take a long screwdriver and pry one of the valves down. Both valves should be closed. I don't know how far the valve should move before it hits the piston, but it should move:maybe a quarter of an inch?
Check the chain tensioner. If it failed to keep tension on the sliding rail, it may have let the chain slip a link over one of gears teeth.
If timing is off' you don't have to replace the timing chain.The Mercedes manual states and I quote"If the timing requires correction, install an offset Woodruff key, or if the chain is excessively elongated,install a new timing chain."They are talking about the key in the camshaft, and keys are available in steps from 4to10 degrees measured at the crankshaft.I believe a lot of chains have been replaced when an inexpensive Woodruff key would have solved the problem, If your tensioner is good,the sliding rail good, and no slack in the chain,there is no need to replace a chain,when a $2.80 key will restore the timing.
Please keep us posted on your daughter's 300D. My daughter,Karen , has had my 1977 300D borrowed for the last week. Since she has no garage the car has had to set outside, and we have had some cold weather for the past few weeks.Fifteen to twenty degrees F. and the old car has started every morning without using the block heater. She doesn't have an extension cord. I'll let her borrow one of mine when she comes over after while. That way she can plug it up and have a warm car to drive to work.
Bill Lewallen Lexington,Ky