The 603 head issue has been in my experience a chicken-little thing. 617 heads crack also, and try finding a used head for a 123 300TD, they are special for the hydraulic pump mounting.
I test drove an '85 300TD when new, was "peppy", but I couldn't handle the uncomfortable seat, the soggy ride, mediocre power, big steering wheel, etc., etc. I bought a new Quattro instead.
When the 124 was introduced, I drove one, and was hooked. Unfortunately by the time I could afford a new one, they were gas only, ... I never loved that gas wagon and eventually sold it. The '87 I now have I bought used. The later 124s have more refinements, but the '87 is still a significant evolution over the 123, as it should be.
Problems plague both if not properly maintained, that means in the past 5 years, and in the past 30. If the fluids were not maintained properly you will likely have caliper issues eventually, cooling system issues, etc. If the suspension bushings are tired, either car will need the suspension refreshed. I really don't see much difference between an '85 123 and an '87 124 in cost of ownership. Be sure that you look at the buyer's guides and know what to look for, and yes a cracked head would be a bad thing, but you can get a used head from any 603, not just wagons, ... but a neglected cooling system is always a red flag.
To finish the comparison, the '87 was originally 0-55 in 9.5seconds (wagon, slower than the sedan as it is 400lbs heavier and .02Cd more drag), pretty respectable. It turns more neatly, less body roll, accelerates and brakes much better, will climb mountain grades happily, better fuel mileage, better HVAC, better ergonomics, better seats, lots of used parts available (sold lots of gas wagons through '95, lots of gas and diesel sedans through '95, lots of SDLs with same engine, ...).
Really it's a matter of taste. I love the 124, long story, but I also love the look of the 123 wagon (more classic look). If I were buying it to look at, it'd be a 123, if buying to drive a 124. It'll be tough to do an apples-to-apples test drive comparison because of the widely varying condition of these older cars, and the fact that there were only around 1,500 of the diesel 124 wagon ever produced (~320 of those white dealer-service wagons), or find a nice example of a gas wagon to compare for ride and handling and go from there. Most of these cars will have no power (search ALDA and switchover valve) until a couple of simple corrections are made, try to overlook that also.