Firstly ensure that the diesel pump is timed correctly, and check the drive (cam) belt- it's not unknown for them to jump a tooth if the tensioner is on the way out, and the pump being out of time will cause the problems you describe. Also, has anyone been fiddling with the fuelling settings?
If you are unsure how to check the pump timing take it to a diesel specialist.
What colour is the smoke when it starts and is driving? Black smoke indicates overfuelling, white smoke (what you get on start-up) is unburnt fuel, and blue smoke is burning engine oil- if the engine's shot, I'd expect it to be blue smoke. Black or white smoke indicates an out of time pump.