Sorry to hear that outcome. At least it will be a cheap repair, parts-wise... heavy on the labor, and even when it's your own it's hard to think of that as "free", but at least you don't have to pay for it. Agree that it sounds like an engine pull job.
Any cooling system work would certainly be worth doing with the engine out. If you haven't had a new radiator or thermostat in a while, now is the time, and carefully check all hoses. I posted a way to cheaply create a set of new heater hoses from easily-obtainable parts to replace the expensive stock ones that, if original, are 25+ years old now... that is worth doing if yours are in questionable shape. Radiators are available new, or if you have an original all-metal one, you can get it re-cored. Or still get a new one, but if you have a metal rad, don't throw it away... someone here will want it as a core someday.
Anything else that is tricky to do/reach with the motor in situ is worth doing too. #5 and 6 glow plugs, timing belts (you'll have the front one off anyway for pulling the oil pump), little coolant hose on the back of the head that always gets covered in oil, rear cam seal, etc...
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86 745 D24T/ZF 345k lifted 2.5"
83 764 D24T/M46 155k
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