280GE Oil drinking and smoke

Get a compression test done that will tell you the overall health of the head but at the age of your car a rebuild doesn't seem an out of the ordinary sort of issue; my ge300 had a head rebuild at 150,000 miles and that's the next generation engine compared to your 280. Do you know the mileage, its often difficult to tell with w460's as the odometer only goes up to 99,999.

Oil smoke from exhaust upon start up only indicates valve stem oil seals. 

Constant oil smoke at idle or during driving indicates piston rings and, or oil control rings which amounts tothe same thing as these equally wear out during each stroke of piston travel. 

The M110 engine; i.e. your 280GE is designed to consume some oil and it is quite normal to be replenishing something like up to 1.5 Lts per 1500 miles. Therefore frequent oil check and replenishing of oil is paramount.

Accessing the engine for wear; I suggest an independent oil pressure gauge to take oil pressure readings on a normal operating temperature engine; oil replenished as it should be. The minimum permissible is 0.7 bar at idle speed. This pressure should immediately rise to 3 bar or just below above idle speed. Having this sort of oil pressure reading could improve by using a thicker viscosity of oil, instead of the 15W/40, use 20W/50. You can get different rated oil relief valves to increase oil pressure but in my view this could be a short term resolve as there is wear in the engine to give you low oil pressure in the first instance.

Have a compression test done which will give general indication to condition of compression indicating wear at the piston rings and valve condition. Pedantically, compression test should be done having firstly checked and adjusted valve clearances to get best results - preferably checked on a cold engine.

The idle test for piston ring wear is a leakage test, this can test out ring wear and indicate leakage via valve seats hence condition.

Check for oil leaks; commonly if the head gasket leaks it will be at the rear left corner of No: 6 cylinder looking into the engine from the front of vehicle. Further oil leaks is the rocker cover gasket - oil leaks out from the side of the cylinder head and oil can be seen from under the exhaust manifold. 

Should you determine the engine is worn; in my opinion fit a re-manufactured engine rather than a reconditioned engine. These are more expensive than the reconditioned engine but the workmanship you get in return is as good as a new engine from the factory with new components and not accessed for re use. The cost difference is relatively small for the new components fitted to a re-manufactured engine. Company Vege used to do M110 engine, Ivor Searl is another reputed name. 

If you are going for the second hand route then note M110 engine from saloon models will fit into the G-Wagen with some changes made to oil pump pick up and sum pan. These engine are of higher compression than G-Wagen engines as these are detuned to cope with off roading and the engine torque map is slightly different. If you are not very serious about off roading you should not have any problems  with this solution.

If your engine does come up with low oil reading, I would NOT recommend using engine oil flushes to clean the internals of your engine. These products are fine but on a good engine.

Keep us informed.

oil passing through the stem seals won't harm your engine in any way might even help it along, I'd be worth doing a compression test b4 you decide on gasket replacement, if the pressure is down do the whole head overhaul at that point

You say " The thermostat has so far never gone above middle level"

Mine is a different engine (300) so running temperatures may well be different and someone who knows will hopefully come on and confirm, but mine used to run with temp gauge "in the middle" until I was told it should be nearly at the 3/4 mark. I changed the thermostat to the correct one and engine been running much better ever since.

Pistonhead or Arnie will know the answer.

Some properly tighten belts can sometime squeal initially. If having made sure you have the CORRECT belt fitted (in terms of length and width and the vee profile) then the only alternative you have is remove the shine off the all the pulleys that is alternator, crankshaft and idlers. Or spray anti squeal spray on the belt. Alternative is rub some chalk on either side of the belt profile.