i would suggest taking it a machine shop and having it tested for straightness and having it pressure tested/xrayed for cracks. level check should be free, and the pressure test should be about 30$ but its well worth it..

For the leakdown test, check the cylinder walls very carefully if they look good, then its in the head. carefully check all of the valves make sure the seats look good on both the valves and the head. If everything checks out, lap the valves very well and throw it back together.

EDIT: ah, that would show why your leakdown showed crappy results. Alluminum and diesel just doesnt mix..

__________________
Have you ever noticed that anybody driving slower than you is an idiot, and anyone going faster than you is a maniac?

As long as they would add one additional commandment for you to keep thy religion to thyself.
George Carlin (Wonder where he is now..)

1981 240d (engine donor 1983 240d) recently rebuilt engine hurray! - No more.. fought a tree and the tree won.

pearl black 1983 240d 4speed (Converted!@$$%) atleast the tranny was rebuilt.