this test is best done with the oil cooler hot. I think the cooler sees quite a lot of oil pressure.

do you have coolant mixing with oil?

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2012 BMW X5 (Beef + Granite suspension model)

1995 E300D - The original humming machine (consumed by Flood 2017)
2000 E320 - The evolution (consumed by flood 2017)

Negative on coolant on oil. Only apparent oil in coolant. But its a sludgy peanutbuttet consistency that is clinging to the walls of the coolant resivoir. Nothing floating and the coolant is not cloudy.

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Vehicles:
2002 SLK 230
Gone but not forgotten:
1983 300D
1981 El Camino 'OILBRNR' - 6.2L diesel
OM617 powered '86 F150
1984 BMW 524td
2001 VW Beetle TDI
1994 Sunurban 4x4 6.5L diesel

Oil in the coolant won't cause an overheat. What you have might even be some sort of sealer.

Oil mixes with coolant and turns brown.

Pump air into each cylinder ( piston at top, both valves closed ) the look for bubbles in the rad , level rising. This is a fast easy check.

With a cold rad and hot motor, you are losing circulation either from a stuck t stat or compression entering the cooling system. Don't just pull the stat, many have a valve on the bottom to block the bypass, at that point you will overheat.

Well, ding ding ding. We have a winner.

Tore down the front end to inspect, the water pump, oil cooler, radiator, etc... thermostat...

And there is NO THERMOSTAT. So that is that. No oil in the water, all my water surfaces dried clean and dry with no residue. I think the sludge was left over from somethig else? It was only present in the reservoir. Buying a thermostat tomorrow, will start diagnosis over from the beginning

__________________
Vehicles:
2002 SLK 230
Gone but not forgotten:
1983 300D
1981 El Camino 'OILBRNR' - 6.2L diesel
OM617 powered '86 F150
1984 BMW 524td
2001 VW Beetle TDI
1994 Sunurban 4x4 6.5L diesel