Martin,
Defender bulkheads are equally prone to rot as the old sewries ones were. Rot in the the lower posts is easy to fix as there are relacement, weld in pieces. Rot in the upper section isn't so easily fixed for a few reasons. There are patch pieces available over here, so I have to assume you can also get them. Cutting them in and welding them up so it is cosmetically acceptable is a job for a professional. Usually, when the rust starts showing through to the outside, it's pretty awful inside. The good news is, new defender bulkheads are available, inexpensive (releative) and easy to replace.
The 2.5 TD is a workhorse, but old engine. It was replaced by the 200 TDi ('i' being for 'intercooled') Excessive oil on the top of the engine may (or may not) be from 'blowby' a condition casuing excessive crankcase pressure due to worn rings. A bit of blue smoke on starting is normal, as long as it goes away when warmed up. Black smoke is fuel, could be fauty injectors or injector pump timing. Take the oil fill cap off when the engine is running; is there alot of 'air pressure' Coming up? That's the 'blow by' indicating rings are worn.
A 200 TDi is the reasonable transplant, or even the newer 300 TDi.
The price doesn't sound bad for UK prices if the body work is straight, seals aren't all worn out, and frame isn't full of holes. You didn't comment on Gearbox, Axles, wheels, suspension busings, you know, all things that can cause clunks and general wallet leaks.
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