Bah. Renew the head gasket and it'll do another 300K miles. Or part
it out and buy another one. What color is the interior ? :-)

I've owned one of these for 25 years. If this were my car I'd:

Find another mechanic.

1. Is there any coolant loss? Coolant in the oil? (head gasket symptom)
Or oil in the coolant? (head gasket symptom)
Any leaking around #5 injector nozzle? (cracked prechamber)

2. ask the shop to remove the valve cover and check and adjust #5
cylinder's valves. It COULD be that a valve is so tight that the valve
isn't closing or that its valve spring broke, or rocker is stuck or
broke etc etc. This is a benign inquiry that won't cost much and is also
en route to 3, if that's needed. If nothing found under the valve cover
I'd consider having the #5 prechamber removed and checked, as a last
gasp possibility before removing the cylinder head. They might be able
to inspect the cylinder and valves through the prechamber cavity using a
boroscope. If it shows a horrible mess of smashed valves and piston,
stop work and find another engine.
3. Have the timing chain's stretch checked BEFORE the cylinder head is
removed so they'll KNOW the chain is either OK or ought to be replaced
upon reassembly.
4. Have the cylinder head removed. The head gasket will be revealed in
all its gore or glory and the valves exposed. One may be burned - have a
piece burned out of it (in which case you should be thankful that the
whole valve head didn't break off and smash everything to hell in there.)

If this motor was running well and suddenly fell into this state it can
be repaired without an overhaul. IMHO it's very doubtful that the piston
or the cylinder liner is affected, rather the problem is in the top -
gasket - valves - etc.

These ARE very tough and durable engines; they typically just wear out
with the rest of the car and RIP. One owner had a valve head break off
but it made a hell of racket each time the piston smashed it into the
head but that's the only one I know of.

The party doing the compression test should have found the source of the
compression leak. Don't make any decisions untill that is known.
I would seek out another opinion and certainly another source other than a
dealer (unless you have found the truly rare one) to do the work.

I will check for oil in coolant and vice versa.  I had had some coolant
loss last summer, but I assumed that it was just getting hot and
boiling off and there was no recovery tank, which I soon rectified.

I truly think that the first mechanic was jerking me around.  He did do
a nice job on the engine swap, but he took WAAAAAAY too much time.
Every time he had my car it was a minimum of a month....You don't want
to know the longest amount of time.

The valves were adjusted at the dealer, they found minor mis
adjustments, but nothing major. Nothing stuck or broken.

The car was driven less than 50 miles since it started acting up.  I
really didn't want to make anything worse than it already was, on the
theory that the less damage done, the easier the repair.

It is not making any self destructive type noises, i.e. nothing sounds
as if it is either eating parts, or going to come shooting out of the
hood.  It is just running unevenly.

I have the printout of the compression test that they did at the
dealer.  Cylinders 1&2 show about 26 bars, 3&4, about 23 bars and 5
doesn't even register.  The guy who did the compression test said he
had never seen one that low.  He said that he could not be sure whether
it was a toasted head gasket or a scarred up cylinder wall.

I normally don't use the dealer for repairs $ince they tend to be
expen$ive.  But when I have a real head scratcher, I will use them for
diagnosis.  I have never used the service department at this dealer
before, but the parts guys have always been great, more than helpful.
Frequently giving me helpful information, and sometimes even a break on
prices  <G>.

There are not too many mechanics in my area who work on diesel cars.
The ones who work on the diesel trucks, Ford, Dodge, etc. are usually
the dealers for those, so I don't see any benefit switching from one
dealer to another.

I may just wait for warmer weather, then start poking around a little.
I tend to only do emergency work when the temp is below freezing and I
can't get the car in the garage.

Thanks for the info!!!

Rochelle