If the engine is shot, (which sounds doubtful if it only has 166,000km), you can either dump the car, or replace the motor with another 6304 engine. Replacing it with differnt configuration motor is more work than it is worth. You should be able to find a good used 6304 with less than 100,000km for 1500 to 2000Cdn. Call Ed Schram Motors in Vancouver, as I think they have a few of them, or see if you can scout out one at a junk yard, although it is doubtful you will know what shape it is in if you find one there.
I would suggest you check what is really wrong with the motor. You could simply have one of your hydraulic lifters sticking, which can happen to these motors if they have been sitting for a while.
The 6304 was a good motor (despite all the nay-sayers out there) so long as the maintenance schedule is scrupulously followed, particularly the timing belt change intervals. It produced about 201 horsepower, and I get between 28 and 32 miles per gallon (imperial) on the highway. The nivomat shocks in the rear will cost you about 1300 cdn every three years or so, especially if you live in an area with frigid temps and rough roads.
Its a great car, and if the rest of your car is as good as you say I encourage you to either fix the engine you have, or drop another 6304 into it.
Let us know how you make out.
JD...another member of the White Block Society
65 1800S
84 240GLE
86 740Turbo auto
87 740Turbo (parts)
88 740 Turbo manual
92 960GLE
97 960GLE (daughters)