I am looking to convert my 300E which I have spent a good chunk of money on everything from suspension to ac to brakes to interior to get it up to standards for the next 200K miles when my head gasket started going. With that gas motor, looks like I will need at least $2500 worth of work and another $2500 for the tranny. At that point, I thought either hotrod or conserve. Now, I think conserve is the way to go.

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What recommendations do you have with putting a diesel in this 92 W124 car. I would like a strong reliable motor and tranny combo that will provide a good platform if I want to go biodiesel and run the car another 200K.
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Body and interior are perfect, Brakes, suspension, cooling, AC, shocks, springs, steering, exhaust, all have been replaced in the past 12 months (most likely more but I am afraid to look at folder right now).

If you do this, you'll have to get one of the slotted passenger's side fenders the W124 diesels had for air intake purposes.

Can you not draw air from under the front end of the car or does it have to be from that source?

Also, I assume there will be fuelline and tank issues that I will need to address since I remember the fuel nozzle is larger for diesel.

This is not a good alternative... extremely costly as just about everythig has to be changed. I would look at used parts sources like Patomic that advertizes in the Star MB Club magizine for a low milage used gas drivetrain. Then it is a simple swap out. I replaced a 2.5L diesel in my '91 124 300D with a 2.5 L diesel engine out of a 93 model. Cost about 2700.00 My suggestion is to stick with the same set up you currently have.

Easier and cheaper to buy a W124 with diesel already in it.