I have a Zero Start similar to the one pictured except round. It does not go into the lower hose.

This is what I did on my 82 300SD.

Zero start sells a fitting that screws into the block drain. Take the drain out, screw the new fitting in. Mount the heater on the frame directly across from the fitting. Connect a hose.
Along with the heater came a plastic "y" fitting. The "y" fitting goes into the hose on the driver's side of the engine that comes from the heater valve. The top of the "y" is connected to that hose, and the the other top leg gets connected to the top fitting of the zerostart. The lower leg of the "y" goes into the hose leading to the cylinder head. I simply cut the hose to install the "y".
You have to be careful in the hose routing. The hose can not have a loop - it must always travel flat or uphill from the zerostart. The zerostart heats the water, and the hot water rises.
Mine works great. I have a full voltage timer hooked up to turn on the heater 1.5 hours before I leave for work. It was minus something this am, and the zerostart coupled with my battery heater, the car started as if it were summer out.

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Thank You!
Fred
2009 ML350
2004 SL600
2004 SL500
1996 SL600
2002 SLK32
2005 CLK320 cabrio
2003 ML350
1997 C280 Sport