Problem with 225 in my New Truck

Hey everybody. I know this isn't an A body and that there's tons of good info over at slantsix.com but I know everyone here is very helpful and I usually get a pretty quick response. I recently bought this 84 D150 for $2500 and am very happy with the purchase.

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The reason the owner was selling it so cheap was that after driving for a while, the dip stick will pop up about two inches out of the tube? He felt that the engine has a stuck ring or two and was probably going to need engine work and he was done working on the project.

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Before buying the truck, we went for an extended test drive out on the highway and the engine seems pretty solid. There is a pretty good exhaust leak at the head (looks to be a nut missing off the last stud, and the PO included a new intake/exhaust gasket), but the engine doesn't get hot and there is no audible knocking or squeeling. There is a puff of smoke out the exhaust on initial start up, but other than that, no indication that there's anything seriously wrong with it.

I've checked the PCV and the breather, and both seem to be clean and functioning properly. I'm not a big slanty guy so I was hoping that the experts would chime in and help me sort this problem out. I'm not looking for a long term fix because I've already secured a 360 to put into it, but that might a year or two down the road and I'd like to drive the truck as is and work on other little projects first. Thanks in advance for any insight you can provide!