Other than size, the main difference is the rear suspension -- the W126 uses the MB semitrailing control arm rear end, and the W124 uses a multi-link rear end. The W124 is a newer design by about 5 years, but is otherwise very similar. The use the same climate controls, etc.
The 126 sedans are considered by many to be the best MB every built -- very reliable, by and large (350 SD/SDL aside -- engine trouble!), plenty of power, very good ride, a great pleasure to drive. The 124s are lighter and peppier, don't have quite the ride quality, but are otherwise reliable and troublefree, at least as MB's go. High maintenance, but that is a European car thing.
I suppose it depends on what you want -- both are fine. The 126 retains value a bit better, but the large coupes are big relative to the 124 coupes.
1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!