Engine "using" coolant

My son was driving our '84 300TD, when to his untrained anything cars, he called me and said it was losing power and smokiing and pulled over onhis way home form school and I wnent to pick him up. Towed the car to my Benz mechanic, and his asessment was the fuel may have algee from the tank, and since it was getting colder, maybe we didnn'tknow the proper stat procedures. I could buy that. Actually what I bought was new fuel filters, also replaced the ignition switch so the blower would work, (we could pull slightly back on the key and have it work), and installed a hose to redirect the coolant through the heater core to give us heat (it had been bypassed) He did mention the coolant was empty for which I replied, there is no leaking in my garage or otherwise any where else. We have carefully monitored the floor of the garage since acquiring the car last May. He also mentioned his mechanic could notice a smell when idling the car which he thought might be coolant, and we could be burning coolant, "keep an eye on it". I drove the car a few blocks to my office, noticed a bit of grey and white smoke coming out of the exhaust, thought it may have been from sitting a few days. Upon leaving the office for my 17 mile drive home, wverything was fine for the first half of the trip and then the temp went straight up, maor smoke from the eshaust. I stoped the car and noticed no coolant in the reservior, maybe a litttle oily residue. The dipstick was way over the top, but the oil was very thick and seemed to be in decent shape.

My question is how can a mechanic miss a cracked block or head? How can a car run with the coolant running into the engine? No fluid anywhere on the ground or coming out of the eshaust. And what is my prognosis? Kill the car or replace the engine? Any ideas? How difficult is it to swap engines?