Blue Smoke on Startup

I have a 1988 Toyota Avalon with about 130k miles. Suddenly last spring it developed the following problem:

1. Large cloud of blue smoke immediately upon startup.

2. Exhaust becomes perfectly clean after the first 10-20 seconds. No blue smoke at all after that.

3. Local dealership service department worked on it for 3.5 months and gave up. They did the valves twice (including guides and seals), and pressure tested them. They also replaced the rings.

What else could it be?

I believe the automatic transmission in your vehicle utilizes a vacuum modulator. If so, the blue smoke could be transmission fluid which is just 10 weight oil. If the modulator diaphram has leak, the engine could be drawing in transmission fluid via the vacuum hose to the modulator.