Pug 206 1.4i SE 2005 - Overheating Problem - Help

[Ayren]

I have the above named car, it occasionally overheats and gets a strange smell when it does.

The FACTS

It has water
The heaters work
There is no oil in the water
However on taking the oil filler cap off I can see oil about an inch from the cap rim, and the dip stick only has a small amount of oil on it.

It seems as if the oil is not flowing down into the sump

Any ideas????

 

[Stivino]

My first idea would be to put a litre of oil in it and see if it comes up.