Based on your description I'd say you blew the engine up. 

She go boom!

DB,

Here's your basic problem:  you don't understand the fundamental truth that you get exactly what you pay for with these cars.  The other basic fundamental truth that seems to escape you is that a car will treat you the same way you treat it.  So, let's recap your history:  You've been buying (inheriting, stealing, whatever) a bunch of clunkers and then beating on them mercilessly.  I don't know how to explain to you that a car with 750K on the clock is not a daily driver. NO WAY!  It should be in a museum, it's beyond all reasonable component life expectations.  There is absoultely nothing in that car that's safe to use at that point.

So what's you solution?  You go out and buy another clunker!  Fortunately, that one gets put out of its misery by a van.  Good thing, because it wouldn't have lasted long under you anyway.  You go back to your "tree-quater-million miler" for some more abuse.  You put in in potholes at 45+, scrape things etc etc.  Heck, that would probably kill a car with 75K, never mind 750K.  As it happens, your 240D finally seems to have called it quits.  I doubt that being owned by you was a big help.

Your next step?  You guessed it, another heap of scrap!  201K, a "rebuilt" motor that looks like it has 2.01M miles on it, rust everywhere, interior shot.  Tell me this: what are you hoping to accomplish here?  Redo the interior and body on a car that's probably hardly woth a brake job? What for?  Only because it's a W123?  I love them too, trust me, but Dear God!  Some of them (maybe even most of them) are too far gone by now, it's economically not cost-effective to revive them, it's a waste of time and money.

What you will eventually figure out is that you need to save your money and buy something decent.  This way you'll finally see how a good car should feel and drive and how to keep it that way. You can't learn anything with a car that's constantly falling apart, because you don't have a good baseline of what should be happening. I know they seem expensive, but it's really not that much more than spending $1000-1500 on a car every 6 months plus all the repairs you've had to do.  Save up some money and pick yourself up something nice and then treat it well.  It will be a lot easier on you in the long run, believe you me.  It will also be a lot easier on all of us.

May I recommend this fine automobile?

 http://cgi.ebay.com/ebaymotors/1979-Mercedes-300-CD-Diesel-2DR-Green-Dark-Tan_W0QQitemZ300000016088QQcategoryZ6330QQrdZ1QQcmdZViewItem

I rest my case.  But, just out of curiosity, what's wrong with this one in Hewlett, NY?  You don't gotta fly there.

 http://cgi.ebay.com/ebaymotors/1981-240-DIESEL-ONE-OWNER-SUPER-LOW-MILES-GAS-SAVER_W0QQitemZ4639874021QQcategoryZ6315QQssPageNameZWDVWQQrdZ1QQcmdZViewItem