it can if it is not cleaned properly!
use a flapping wheel or propoer wire brush to remove rust before priming and don't use rotating wire brushes as this just polishes the rust!
also use an acid etching primer before painting
good idea, although being a engineer, I would have to do that quite a few times (say 20) so that I could get an accurate(ish) average as driving "style" and conditions are likely to differ each time you do the "X" miles!
I'm always a bit skeptical when anyone says there old land rover will do X mpg. I guess it's very subjective and very difficult to scientifically measure unless each time you fill up, you empty the tank until you run out!
mines also a 1995 300tdi 110, with a low mileage engine, serviced regularly, etc. but I'm lucky to get 20-25 on my daily drive! around the town, i imagine it's a lot less!
if I regularly got an average of 25, i'd be delighted with that!
it's probably going to be either the rack (item 5 below) that's slipping, or the motor and gear slipping.
you will probably need to get the crash pad off to have a look!
I think (although I may be corrected) blue smoke is oil but if it clears after a while that should be ok. Mine (300tdi) is a bit smokey on start up but soon clears.
if it was constant white smoke then i'd be worried!