Look at this turbo, white at the exhaust manifold
 

So I have gotten all the b.s. worked out (I hope) now time to address other issues. The turbo is all white where it meets the exhaust manifold. From what I understand there is not a gasket there, its just a flanged fit. Does it need to be tightened? Does not seem like its loose. I do get a little oil blow by from time to time that will give me a little white smoke (which I would like to fix also) but would that cause this issue.

Thanks ahead of time.

Senor, a little whiteness is acceptable but know this: Oil smoke is always blue, unburned fuel is black, carbon is brown and anti-freeze and transmission fluid burn white. If you have a puff of white or blue the end results the same...I foresee a new or rebuilt turbo in your future!

So its not oil blow by its antifreeze? Interesting. What is involved in rebuilding it? I have see where people say get a turbo from a 850? Enjoy your imput as always swift.

Well, we're getting into newer Volvos than I have intimate experience but if memory serves me correctly, beginning in 89 the 7's got the 13g Mitsubishi turbo. Kind of small but spools quickly which pleases Americans weaned on V8's. The 850 had maybe a 15g? which is a bigger unit, spools a bit slower but doesn't fall on it's face at 4500 rpms. So, a performance improvement. Because it from a wrong wheel drive car, the two ends have to be re-clocked so the oil lines, coolant lines and charge air output are the same as the current configuration. This involves lots of PB Blaster and a propane torch to cook the PB into the threads. Turbos grow together with use. Not rocket science but tedious...sometimes takes a day or two of repeat applications to get them apart. To reclock the turbo is almost as much time and effort as rebuilding one. I can not speak from experience w/ the Mitsu's but the T3 Garrets are a breeze to rebuild. Once the three sections are separated, installation of the new seals takes 15-20 minutes tops. As always, the real time is not the rebuild, it is getting to the turbo and separating it. I've done 3 T3's and one T3/T4. I can not think the Mitsu's are any more difficult. Here's the best place ever to buy rebuild kits http://www.gpopshop.com/ The reason they are the best isn't that the parts are better or the prices are the lowest...it is because a quick email or call is actually answered by someone that speaks fluent English AND knows turbos! Check 'em out and weigh your options...me? I don't use used turbos without rebuilding them. The kit may seem pricey but compared to buying one done for you puts it a little more in perspective. On my 94 940T motor currently residing on a stand but destined for my GT, I used a $150 "ChinaBay" turbo off eBay. It has been on the road for 2 years and 7-8k. Boost levels are in the low 20's and has performed flawlessly. It takes a few mods to run it on a Volvo (reclocking, altering the oil drain line, adapter for the oil feed, non-water cooled so must swap to n/a/ rad hoses) and is a wonderful improvement in performance if you can afford to have the car down for a few weeks while you do the mods. If you need it on the road ASAP then I'd either go w/ another o.e. turbo or the 850. Still the 850 one will take some time to re-clock.

The white at the turbo flange is 100% normal on older engines. Typically that is nothing more than a small exhaust leak, it can get worse as time goes on but otherwise the white is not always a sign of something bad. The additives in your fuels are going to change the color of the insides of your exhaust system.

The smoke out the tail pipe could be also Valve stem seals on a higher mile motor. Typically these will start to seep small amounts of oil past the worn seals after idling for longer periods of time. Once moving things heat up a bit and there is pressure and air flow around the valves and the oil is not as easy to notice.

anyone know of a thread somewhere that shows how to adapt the 15g from the 850 to a 940 B230FT?

BD, search turbobricks.com It's done quite commonly. I'd also consider pm'ing the above poster, thelostartof, as he has run every turbo known to mankind on his 740! He also sells fuel and ignition chips and occasionally will build a 3" down pipe for folks too. Very knowledgeable fellow and a great addition to the forum. Welcome Mike!