My engine has started smoking on cold start up... I had several people tell me it might be a oil sludge problem. Is that serious? How does an oil sludge problem surface anyway?

What color is the smoke? It makes a big difference...

White could be condensation (normal), antifreeze burning off (very bad, and it has a sweet smell to it), black is usually too much fuel (ignition, injectors, ECU or one of the many sensors) or blue (oil burning).

I literally got off the phone 10 minutes ago with my Toyota dealership. I have a '02 Avalon. There is a "oil jelling" problem with this engine. The repair work and new valve covers and extensive engine parts cleaning are being covered by Toyota. It is about a two day job. I suggest you take your car into a dealership and have them test it. It is a "cold" test so you must leave your car overnight for testing to begin. The parts are going to take 7-10 days to get in and I am to receive a rent car for two days. Good luck.