The problem is Diesel engines not allowed where i live, it would've been a perfect solution, here we have very bad quality Diesel.
i think i'm ganna go with M103 or M104 seems promising engines
it will be quite tight towards the front and back of engine,
a w124 radiator fits in there without a problem, both the largest and the thinner one, might be an idea to remove the mechanical fan, and go with a large electric one in front of the radiator. you save some space that way..
(ive got a om606 in a w123, the sixcylinder diesel, and sizewise, they are about the same as the m104) and no way to fit the mechanical fan in between the radiator and engine.
a large w124 radiator is quite an upgrade from the stock w123, and since it is plugandplay there is no reason to not go there.
ive got the w124 300d enginemounts on the engine in the w123, and it works good, althou it is quite tight towards the back of the engine. you dont have to fabricate as much new as one could think.
are you going for manual/automatic? where do you live?
a different differential, 3.07/2.88 or something alike will do good to fuelconsumption and comfort with a fivespeed, and if going for fourspeed automatic, something even higher geared, 2.65 or something.