Just go for 1JZ, i have got an w123 wit 1G-GTE b 4, not so well perfomed. Just better than any normal 2.5 n/a car. But 1 thing u have to consider and its from my experince, the rear axcel wont last u long. if u speeding over 150km/h, u will having heavy vibration from the back of the car. this is bcoz the rear axcel from merz is designed to reach top speed of 180km/h onli. i have changed 2 axcel in 1 year for my merz, even i have found the best one to fit it which is from w123-3.0cc with better ratio.
To put in 1jz into w123 is not an problem at all, just mods the engine's mounting and some minor mods onli.
Wiring i suggest u put in the full set of 1jz. then trace back from wat to need in w123's dash. Eg: console wiring for aircond, dash meter, signaling lights and etc.
Dont use the w123 dash meter, use the 1jz meter. this is becoz the reading of both meter will never b the same. ( example : 1. the speed sensor from 1jz's tranny is digital. there is no cable. how r u going to convert it into w123's meter which is using cable ? 2. The RPM signal is not same also. yes, u may get w123's rpm moving but its not accurate. )
The halfcut of 1jz (JZZ30) is around 2.5k to 3k, labour charges around 1.5k.
these 2 things already cost u nearly 5k. yet its not include all unexpected expences.
Think Twice.
If u got any problem, u can pm me.
I hav full set of 1jz (JZZ30) wiring diagram which i used to convert my LS400 into 1JZ-GTE.
good luck
Eng