I have a similar body rot on my W115. If you live in a wet enough climate, it will eventually take out the entire panel. The belly pan is not that expensive, try K&K manufacturing:
http://www.kkmfg.com/
Though the website does not show it, Tim does have W123 panels and rubber seals, too. Of course, rust-proofing and welding the new panel in place can be pricey. Good luck! Andrew Seidel.