You may have a cracked ring (I did in my '79 300TD) or the cylinder bore has worn to the point you need an engine rebuild (more likely, I also had that problem w/ my '79 at 279K and spent $5K installing a rebuilt turbo engine in it).

I would walk away from the car before you get too far into it. Finding a low mileage engine for the car (a non turbo) is going to more difficult than finding one for a turbo. You will probably like a turbo model better too especially if it has the later style climate control (not the best system either but still easier to find parts for).
Dieseldiehard
1971 220 (gas) 4-spd manual 106441
1979 300TD w/ ’85 turbo engine 295530
1983 300D 243280
1985 300TD 217300
1987 300D 258230

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'95 E320 Wagon my favorite road car. '99 E300D wolf in sheeps body. '87 300D w/ Sportline suspension. No more '79 300TD w/ 617.952 engine at 367,750, it was my annual driver to Texas and I sure don't miss it poor A/C heater system!