One year later, I answer my own post - since none of the anwers I received helped.

PO assured me he had gapped the valves before sale - turns out if he did, he did it wrong. Aparently, on these diesels, the valves go tight as they wear causing low compression and consequently very poor idle when cold. As the engine warms up, valve train parts expand and the valve clearances increase solving the poor compression problem (due to valves not closing completely).

I adjusted the valves this summer (7/2003) as part of routine service (this should be done twice a year or every 15,000 miles - whichever comes first). Once I got valve clearances set correctly, the cold engine idle improved dramatically. Now, after about 10 seconds, the engine holds idle on its own.

I am currently using 0w30 Mobil 1 synthetic and will find out if its superior lubrication and cold flow qualities reduces part wear to where I can get away with valve regaping only once/year. - Colombian Coffeebean