You definitely have a fuel line blockage along with clogged filters. Some air in the clear filter is normal, but low power isn't. The tank screen screws into the bottom of the tank, I believe, accessable from below the car. A square 37 gal. tank is likely aftermarket, and may not have a standard screen, instead having a "sock" on the pickup. change both filters with engine hot, fill spin-on with fuel before installing. Prime with the hand pump -- red knob on the lift pump, unscrew and pull/push. New style is a "thumb" pump that is sealed and spring loaded, just push down and release. If there is considerable suction pressure (pump rises slowly or you have to pull it up) you have a line blockage. If you get air moving through the clea filter (as opposed to a bubble sitting there), the suction side hoses between the lift pump and tank are bad and leaking air in. This will DEFINITELY cause hard starts and smoke along with poor performance, and is the cheapest fix....

You are also at the low limit for compression -- likely have worn piston rings and cylinder walls -- did your mechanic check them when the head was off? Should still have honing marks. If they are gone and the walls are nice and shiny, they are worn out.

Valve adjustment will help here.

I would also check the chain stretch -- likey it's badly worn, so both valve and injection timing are late.

Peter

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1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!