1986 325e engine problems. skips and noisy tappets

I just bought this car for the fun of it and the first fun is making it run. It has a lot of tappet type noise, and just barely runs. I removed the valve cover gasket and found one cam with two rocker assemblies, they look ok. so what is wrong with it? and what is the next thing to look at? I am thinking to put the cover back on and start it and pull the plug wires one by one to see how many cylinders are hitting. Is this ok with a bmw? what is the round thing that looks like a relay receptacle near the front center left of the engine compartment?

why is the check engine lite blinking? why does the antitheft stereo say "code"