David,

I did a similar job on a 90 300E. My take at your questions is -- it depends...

First, does your new stereo head unit have a 2 channel amp or 4 channel? Does it have an internal fader control? If it has a fader and/or a 4x amp, I would recommend bypassing the existing console fader entirely. Nicodore is right -- you'd only use half of the radio's power if you used the existing fader, because it splits a 2 channel input to four speakers.

As for the speakers, you should see a HUGE sound improvement by replacing them. The factory originals are only cheap paper cones.

You can use existing wiring if you want. A purist would say that thicker wires are better, and that's generally true, although it might not be worth the effort. Your call. I'd check thickness of the wires (the copper, not the insulation) that come with your new speakers -- if they're not
much thicker that the existing, don't worry about it.

There is a way to use existing 4-speaker MB wiring and bypass the existing fader, if you're willing to cut wires. If your car is like mine, all 4 speaker wire pairs pass right behind the radio location and can be accessed directly.

Hope that helps...