Yes, it is possible to get a distinction with TMAs and exam scores less than 85%. Once the exam is complete, the exam board look at the range of scores achieved, and depending on the performance of the students, the grade boundaries can be lowered (but they are never raised).
The reason for this is that the exam cannot be guaranteed to be of the same difficulty each year. So, if less than the expected number of students score >85%, the exam is presumed to have been difficult, and the grade boundaries are likely to be lowered.
For my electromagnetism course, I received a distinction for a TMA score of 90% and an exam score of 76%.
Apart from grade boundaries, they can also do it if you are very close (say a TMA average of 83) by substitution of a TMA if that is allowed on your course. I got a distinction in this way at level 2 (my TMA's were about 83% and exam 94%).
Do remember that the final result is not an average of OCAS and OES: it's determined by the lower of the two.
But as others have already said, the examining board do sometimes shift grade boundaries downwards (like jf22901, I got a distinction for course with an OCAS of 89 and an OES of 83) and they do sometimes award a higher overall grade to individual students (I know of someone whose OES was several grades lower than her OCAS, but she was awarded a Pass 2 overall).
I'm not aware of a final grade being shifted up when the OCAS is lower than the OES, but perhaps that's because most (but not all!) students score lower in the examinable component than they do in the cumulative component. So if your OCAS is just below the distinction grade boundary and you do really well in your exam/ECA, there is a chance that you'll get a distinction overall, but don't bank on it!
I am also currently on S204 and also have an ocas average of 82%!
It is very annoying however I am giving the exam my best shot in the hope of scoring over 85% and being awarded a distinction at the exam board's discretion.
I am also in the exact same situation in another course - SD226. My ECA is due in next month and my ocas score is 83%. I emailed my tutor about this and she suggested to give the ECA my best shot as her "instincts" tell her its worth it. She couldn't give me anymore information than that though.
Lets give it our best shot and keep our fingers crossed!
Ended up with a grade 2 for S204. Given how bad the exam went I was pretty happy with that. I did however get a distinction for S320 despite having an OCAS of 83%.
So there we go, as already mentioned, it is definitely possible