While driving home last night in my 1987 740 Turbo I experienced a sudden loss of power. I was able to make it home alright, although the car was quite sluggish. When I started the car this morning white smoke was pouring from the exhaust.

What type of problem could I be facing, blown headgasket, blown turbo? Any help is greatly appreciated.

Sounds like a blown headgasket. Is the car hard to start in the mornings? stumble alot? any oil in the coolant overflow tank? Does the smoke smell like coolant?? The smoke doesn't bother me so much.. but the loss of power does.
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1988 760Tic - electric fan, HD radiator, boost gauge, a/f gauge, remote start, NGK plugs, MBC@10psi - 157,800 1966 M-B 230 sedan - 98,000 1982 Rx-7 - 201,000

Start looking for a Turbo unit on Ebay! Or search the web for a rebuilder. I wouldn't drive it much until you confim the cause.

I think JPII is still hanging in there.
But there seems to be water from a blown head gasket...check compression on each cyclinder. Also look for chocolate colored oil. BTDT. You'll have to remove the head and have a machine shop redo it, plane it if warped and then reattach it...not a hard job, just long. good thing it happened during mild weather. Try this in Winter...no fun.
buena suerte,
el Raidman