Hello Ian,
To be logical - Before grinding in the valves there was less compression I take it, especially as you commented that it now starts more easily?
Increased compression on the compression stroke also means increased depression in the cylinder during the inlet stroke, naturally. This can draw oil up past the piston rings if they are ancient - like fifty years old! - and have lost their ability to seal effectively - or broken, of course, but I'd think that much less likely as D's are very reliable and understressed.
It was OK for a while, but then started to leak oil and smoke?
I'm intrigued that it only smokes now and again. From what you say, I'm inclined to think that - being an overhead valve engine - that there might oil running down a valve guide. They are only sketchily lubricated at the best of time by hot oily fog pumping in and out from the crankcase, so the occasional build up of oil around (probably) the inlet valve might account for the occasionally oily plug and the smoking.
First off, I'd clean the head gasket faces by hand, finish off by swabbing with a cloth soaked in meths and coat with a VERY THIN layer of silicone gasket stuff and allow it to dry for 24 hours. You will then have a rubber faced gasket which just might seal again, but it might not too! Clean the cylinder face and the head face with equal care, making sure there is a dry surface by swabbing that with meths too.
Roland's idea of re counter sinking the stud holes is a useful thought, and one I'd not considered.............. Don't forget to pull the head nuts down diagonally and a bit at a time when finally tightening them.
Really, copper asbestos head gaskets are not designed to be used twice and it might prove so difficult to reseal with the one you have that buying a solid copper gasket out of SE magazine (about seven quid, I believe) will be your only choice. But it's worth trying my way first 'cos it's cheaper!
Finally, did you top up/change the oil and what did you use if you did? If you used modern car engine oil, it is much lighter than the monograde oil normally found in a D and may well be flinging copious quantities up the bore that the scraper ring can't deal with and the oily fog in the rocker box is oilier - which is where I came in ;o)).
That should keep you busy for a while...............
Regards,
Kim Siddorn