I spotted this one in my Craigslist trolling yesterday. The overheating smells, to my inexperienced-with-diesels mind, like a head gasket. Have you checked for oil in the coolant? You say it smokes...what color smoke?
I have no idea what that car is worth, but assuming the head gasket is it and not a difficult replacement, $700 is probably not too far out of line.
Hey... a long time ago when it was first overheating I did try the dealio where you put it on your radiator cap and IF the headgasket is blown the chemicals inside the test tube will change from the color that is in there into like a yellow color and it didn't change, therefore telling me the head gasket isn't blown. I guess it could have blown will all my attempts to make it not overheat.
and the smoke coming out the exhaust is white.