I had a volvo 240 estate, and I fitted a Nissan TD23 engine with turbo into it. Points to watch :
- make sure you get the engine lined up correctly,
- once the bell housing adaptor is sorted, go to AP Lockheed or equivalent and get the strongest clutch to fit both engine and box,
- make sure the engine mounts are fabricated well : strength and weld quality,
- use a fuel pump rated for the fuel : if you change from petrol to diesel then the petrol pump may not deliver sufficient fuel at higher engine speeds,
The brownish coolant : may just be old - when was it last changed? As for sourcing an old turbo 850 engine - the turbo will probably need replacing (a mate had an 850 T5 that he bought VERY cheap, used for a year then the turbo failed and that killed it).