Are you going to be actually making biodiesel or just pouring veg oil in the tank?
You best bet for maximum compatibility is a CJ-10 Tug with a Nissan SD-33 diesel
Seriously though, as you know the VM 425OHV in the XJ is problematic, though there are
people on here who use veg oil in them. The 531OHV in the early WJs is in your price range
but has similar problems to the 425OHV.
If you're making real biodiesel, then you might get away with a common rail - the 2.7CRD
WJ would be in your price range.
Don't use veg oil in a common rail.
The secret is making sure your injection pump can get the lubrication it needs, as they use the fuel
to lubricate and not oil. Find out what injection pump is on the engine you're considering and
research whether it will run on biodiesel/veg oil (whatever you're making).