Matt (MRL390) is right, the smoke is probably from the valve seals. It probably only does it after it has sat for a while (like over night), but once its warmed up, it should stop....Its not a big deal. My 1989 Chevy Silverado 5.7L does that sometimes after it sits for a long time, but it only does it when you first start it, and it has 230K on it, but it run GREAT, and still passes California smog.......

 

Thats what I'm trying to say- no on the engine, no on the transmission, and no on quite a bit of other stuff too (why I brought up the engine accessories, steering, etc). It doesn't matter how good it drives, shifts, etc- the thing is just plain worn out. 200k miles is a lot for most all of these Wbodys regardless of engine- I don't know how you could expect to get any significant amount of useful life out of a car with that much mileage. It might be fine another 30k, it might start going down hill in 5k, it is sure that its almost dead though. These aren't semi trucks, 200k miles is the very end of its life, not its beginning- and definitely is not a good place to start with it.

$1500 (or even $900) is insane for a car that is borderline heading to the scrap heap (where you're only gonna get $200 for it).

Seriously, for $1000- I'm sure you can find another beater with under $150k.