Question: Was that compression test done on a HOT engine or a cold engine? If those are cold numbers, they are useless. But, chances are they are accurate for the infamous 3.5L, especially with high oil consumption.
The good news is you can get an updated long block from Mercedes with factory warranty for around $6k. Constantine put one in his 350SDL a few months ago, and sent me some photos. Ignore the top few pix of his injection pump, the photos of the crate motor are below that at this link:
http://www.meimann.com/images/mercedes/OM603.970_crate_engine/
The new long block will have the updated rods and head, and should last the usual 500kmi that you'd expect from a Mercedes diesel. If the rest of the car is in good shape and you like the car, fix it. Otherwise you won't get squat selling it as-is, and you'd have to go spend as much or more money on another used vehicle with who-knows-what might be wrong with it...
