Thank you both for all the information and suggestions... I am working through them weather permitting... the w124 site is very helpful as I can go into the mercedes manuel there.... will keep you posted on my progress... the car is worth fixing as it had been totally under snow for 3 months and I finally got it dug out turned the key to preheat one time and it started right up. I figure there can't be too much drastically wrong with it....
When a diesel engine starts well cold, its a good indication it is in reasonable condition.
One thing I forgot, Your loss of power could be a stuck injection mechanical advance. This hardly gives any trouble what so ever. But if everything else fails worth a checking out.
Also the Alda on the injection pump its self could be guilty as well. I backed the setting on mine off about 3/4 or a turn Counter Clockwise. Made a big difference when taking off from a stop and that adjustment created no smoke. If you play with this mark where the screw is so you can always return it to that exact spot. If the screw gets tight, stop there. You can break the screw and then you have to replace the Alda, which is in the $120. dollars area. Keep everything as stock as possible. Engine life will be shortened if you don't. For 5 cylinders its a fairly perky engine. Sure it is possible to gain a few more HP., But that comes with a shorter engine life.
Depending on if everything is in tune, it will produce close to 120 BHP stock.
One item I forgot is Valve Lash adjustment. On these engines the valve lash gets tighter as the valves and seats wear.
The adjustment is not really hard and can be done in about an hour.
Valve clearance settings get less when the engine is hot. A pair of bent wrenches make the job very easy. You can buy these or make them if you have a torch to bend them.