OK. I haven't had it back to the garage yet, but a lot has happened verbally in the last few days to clarify the current situation... I now need to decide what to do with this information!
So here's the update:
I spoke to the garage who found and fixed the coolant leak. They confirmed they'd already done pressure tests on the cooling system and also had pressure tested each combustion chambers. No dye test done, but unlikely to turn up the problem since it is smooth running and appears to only affect water and oil systems. In discussing what it might be, they said it was most likely a cracked head (since this model doesn't have an oil cooler), and to be only between the oil and water systems. Interestingly, he suggested trying to track down the previous owner to see if my suspicion about the thermostat being removed to disguise the problem he sold it for...
So I did some Google searching, and actually found the guy, and sent him a Facebook message. He turned out to be a top bloke and phoned me, and gave me a 30 minute chat about the history of the car and its troubles!
He had LPG fitted. Top kit fitted at £2500!
Roll on a few months, then had timing chain failed in action. Car fixed at great expense.
Roll on less than a year timing chain failed in action a second time! Again fixed at great expense including welding a cracked head this time!! (Significant!!!)
Roll on two months and the coolant is full of oil! (Exact same problem I have). So he took the car back to the dealer saying it must be not fixed properly, they said they'd only look into it as a warranty claim if he was prepared to pay the £1300 to fix it if it turned out to be not their fault. Having spent £5500 (my estimate) on the all the above in less than 2 years, he decided he was sick of the car and wanted shut of it instead cos he couldn't stomach the risk of spending any more money on it even if it was almost certainly a warranty job! It almost certainly was just the weld not held that would've been fixed by the warranty on the job, but he part exchanged the car with a dealer to put the whole saga behind him.
Between him selling it and me buying it, one of the garages has removed the thermostat which disguised the problem, since the cooler running engine doesn't expose the leak! (As didn't the pressure test on the coolant system, or the 40 miles of test driving they did).
So, almost certainly the problem is a badly welded cracked head caused by a previous snapped timing chain that wasn't fixed properly.
So I'm tempted to put it in for repair but look to get a donor head in instead of getting the crack re-welded, since I'm told welding alloy heads is always potentially hit and miss. If it ends up being the block, then it is still just about worth getting done, again with a donor block rather than welding. The only issue would be if it is stripped down, head is replaced, but it turns out to be the block as well after it is all rebuilt... which would add a LOT to the labour bill to be stripping a second time. So I will need it to be fixed first time whichever it is (head or block).
I need to sort it for as cheap as possible, but equally don't want the false economy of a short term fix....
My fall back position is to remove the thermostat again and run the car until it dies, which might be a few years off even! This would take a hit on fuel efficiency (negating the cost benefit of it being LPG), but would reduce the oil consumption and keep the coolant effective and stop it being polluted by oil. I'm not keen on this solution, but equally, it is probably a much better bet than replacing the car immediately if the repairs look to to not worthwhile.
I think the cost of a refurnished engine would probably be a step too far cost wise... but I need to get some accurate quotes on the various scenarios so I can decide how much is too much!
The car is still running beautifully right now. No problems from the driving or engine running... just problems with the coolant contamination and oil leak.
Suspect the "cat" might be on its last legs too, which would add to the cost, but it'd probably cost me £2000+ to replace the car, and I might get one that had similar unknown problems waiting in the wings! So if I can patch this one up, it could still be much more cost effective and I know all the jobs that have been done recently.
So, some questions....
If it was your car, would you pour any more money into it?
Would you get the head replaced rather than welded?
Where is the most economical and reliable place to source a donor head or block... (or even a full engine)?
The leak is probably a heat related expansion in the bad weld, but could it also be engine torque exacerbated, eg more likely to show when revved hard (other than the extra heat generated)?
Any other thoughts I should consider?
I am going to phone the garage tomorrow to get some estimates of the various outcomes to refine my decision, so any info before then would really help me to choose the way forwards.
Thanks for sticking with me on this (especially through this LONG update)!
Lots more I could have said, but trying to keep the length of post from getting ridiculous! If you need more info just ask.
Thanks again
Mike
ps... also bare in mind, that before I knew the history, I also got Benny to do the timing chain on this car (eg which turns out to be the 3rd in two years!) and he said it was up to me if I went ahead, since he could see it had been replaced, I gave go ahead and afterwards he said I'd made the right choice, as the tensioner was in a state (never seen one like it!) and so was likely to have also failed early! :o But at least I know this has been done recently.