Thermostat is toast then. Consider the in-line thermo as an option for replacement, rather than the factory mess at the moment. Kap's very well designed replacement housings for the factory aren't ready yet, as he is still in transit / getting set up in Oz at his new digs.
1/4 on the temp gauge is too low, your viscous heater will be cycling on potentially and wasting even more fuel... Or your heat will just be poor. With a good thermo, the inside of your CRD could be a sauna. But I dispute the "cylinder washing" nonsense. Bad combustion, maybe. But fuel into the oil? If that were the case, our dipsticks would be drooling fuel out the top, especially when I used my CRD as a hotel and idled it for 8 HOURS continuously to run the AC in the summer. EGT was (as you'd expect) down to 350 before the turbo. Oil level was constant, and no smoke either.
Carb-loading a cold cat could certainly lead to a nice big cloud of BLACK smoke when it finally combusts, but OIL is the only thing I know of that burns BLUE. Anti-freeze smoke is white, so there are your choices. Ya got blue smoke? You have an oil leak, somewhere. A little will go a long way in making smoke in the exhaust system, b/c nothing else is consuming the oil - it all goes to smoke.
Respectfully, you are wrong on this one Geordi and is not nonsense. I use "Wet Stacking" and "Cylinder Washing" interchangeably even though they technically are two different conditions but if you have one, you have the other and both do definitely occur in the CRD if the thermostat doesn't keep it warm enough. Mine started doing it pretty bad last winter which convinced me that I had put off replacing the thermostat long enough. It will not cause the dipstick to "drool fuel" but I had a measurable rise on my dipstick over the course of a couple months which motivated me to also change my oil at only 4000 miles. Even though I have a gutted cat, enough unburnt fuel would collect in the cat canister/muffler/exhaust system to make a pretty noticeable whitish/grayish cloud when I'd gun it after sitting for 15 minutes or so (although A supposedly knowledgeable mechanic once called it blue smoke). It was not oil smoke it was unburnt diesel. I've driven and wrenched on enough diesels in my life to know the difference in both color and smell. A new thermostat fixed it. Unburnt diesel (almost) never makes black smoke in a cold engine. That occurs from too rich of a mix in a warm engine. Too many people from the south just don't appreciate how diesels behave in truly cold weather such as is found in Chugwater. The Oxidative Cat which is found in the CRD requires a minimum light off temp of 200C to function and only functions at 30%-50% efficiency at 300C. EGTs do not reach this minimum temp when idling with a non-functioning thermostat in cold weather.