You probably have air in the IP and in the fuel lines.

What condition are the fuel hoses in around the fuel pre-heater thermostat and the clear pre-filter? If they are cracked and smell of fuel, likely you are getting air pulled thorugh them, and getting air into the IP, causing the knock and smoke from bad combustion.

Diesel fuel lasts for years, I'd not worry about the quality of it.

White/bluish smoke is unburned fuel -- are you SURE the IP timing is correct? Late timing will usually cause terrible white smoke cold, turning black hot (so will low compression, but I don't think that is the problem).

Leaking pressure valve seals will cause terrible knock, but no smoke...

Peter

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1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!