It sounds like you might have leaking fuel injectors. You could try to remove and clean them, using a concentrated solution of fuel injector cleaner in a coffee can. You could try running a batch of Techron fuel injection cleaner (one of the few products PROVEN to work, I don't sell it but I swear by it) through a couple tanks of gas. You could also try just replacing the entire fuel rail and injectors as a group, from a parts car. The units from any 85-88 will be a direct replacement, though the 88 does specify a different fuel pressure regulator (not sure what the difference is).

I agree it sounds like it's flooding, if you're getting a gas smell and it starts BETTER when it sits a longer time. That's consistent. Did you notice by any chance if the oil smelled like fuel? If it does, that would be enough proof for me that fuel is washing down the cylinders as the car sleeps...
A fuel pressure test would also tell you for certain. If the pressure drops to nothing rather quickly, it's going somewhere and that can only be through a leaking injector, or through a bad fuel pump check valve and back to the tank.
Good luck with it!
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Rob Bareiss, New London CT ::: '87 244DL/M47- 225K, 88 744GLE- 209K, 91 244 183K. Also responsible for the care and feeding of: 88 745GLE, 229K, 88 244GL, 146K, 87 244DL, 235K, 88 245DL, 236K