Good question... A Head Gasket problem does not explain the oil in the exhaust fumes on gear-change, but then how else is it getting there... http://www.quickclickcarfix.com/quick23.html
Maybe you have more than one problem...
Yeah, it's a bit basic.
Is there a test you can do with an air compressor where you fill the cylinder under test through the spark plug hole, then move the cylinder so it's at the bottom of it's compression stroke, and look for air leaks around the valve guides, while pouring fresh oil on them?
Not knowing that engine at all, how possible would that be?
Put a bit of oil in through the spark plug hole, then do the compression test straight away. If you get high compression which gradually drops, then it's your bores / piston rings. Also, try running the engine with the oil cap off; if you get lots of chuffing, then it's either piston rings / bores or the breather system is blocked. PS, to get 175psi you need to run a compression ratio of 12:1; does that sound right for an S4 engine? 120psi sounds pretty low though.
Smoke at gear change-most likely valve oils seals (ie oil being sucked into cylinder only on engine deacceleration and then being burnt off)
Mayonaise-most likely head gasket.
Compession OK then valve seats and rings OK
normally you would do a dry compression check then "wet" (with a squirt of oil in each cylinder to ensure ring sealing) to determine if rings OK. Should be very little difference between a dry and wet compression test.
why is it so hard to remove the head?
do the bolts go through the coolant and corrode?
As you can see I have nearly no experience in this.. we only dismantled an engine once (well 2 engines) but the cylinder head was not hollow where the bolts went through ... if you know what i mean .. they went throught solid metal with only a hole for the bolt ..
When the head is of, better have new exhaust valve guides fitted. On me old GTV I tried fitting new valvestem gaskets, worked for a fortnight. Then the blue puff at gearchanges came back with a vengeance. I could then start all over rant . Luckily I had the pleasure of fitting new headgasket 7 times within 6 months, so the head of/on jobbie only took 3 hours in the end
My small piece of advice and friendly warning: it could be wise to bolt suitable pieces of metal "hose" to those cylinder head bolts so that they will keep the cylinder liners tightly down. If you are unlucky and somebody turns the engine even a bit, the liners may move upwards and you'll need some more work again...
Thanks to Jamie's pic's I spotted the oil pressure sender... Now I've fixed it (bad connection who would have guessed ) showing 6 bar at cold idle then behaving once oil was warm. Also spotted the oil level sensor from which the wires had come adrift so no more blinky light's
Nice shiny engine you have there! even if it is in piece :cheese:
Plenty of good answers but nobody has said what is wrong with LRP. I can tell you folks that LRP is a slow burning fuel. Unfortunately no British Standards exist so every maker has his own formula. The fuel burns slow ad with with spark ignition engines the it is often sill buring when the inlet valve still opens, hence you often get spitting back through the inlet port, and incomplete combustion. The performance engines like yours it isn't good enough---someone described it very well!!