I have a chance to get a 1998 Discovery for a great price. It has 168k miles and is overall in pretty good condition.
Only problem is an exhaust leak near the head. Is this an indication of a bigger problem? head gasket...head needs machining etc?
Should I pass and find another without mechanical problems?

 

My 1998 Discovery. 141K miles.
Unless it has been maintained on a regular basis, count on putting some cash into it, and keeping it for awhile (dealers will only give you $1,500 - $2,500 trade-in, or whatever wholesale is going for).
Make sure you drive it for atleast 20-30 minutes with the A/C on - watch the temp. guage. If it gets hot, you'll probably wind up doing what I did - starting with replacing the thermostat, then checking the fan clutch and elec. cooling fans (had to replace mine),then flushing the radiator, then wind up replacing the radiator.

I'm just saying, don't go in without thorough inspection, and a good idea of what the repairs, maintenance are going to cost you - I spent almost $2,000 so far, and haven't replaced the O2 sensors, yet...

Check for various fluid leaks, too. My power steering unit leaks slightly. If you don't mind tiny drips on the driveway, just keep checking fluid levels. (One of the guy's on this forum taglines says (that seem to be true) - "If it ain't leaking, it must be empty"

Good luck!

 

The exhaust leak is just that, a leak, could be a broken bolt, bad gasket or cracked manifold. Don't make any more out of it, either way it is a quick and easy fix.