My 86' 300E did the same, it was in fact the rod, or axle that runs through the number wheels, it simply worked it's way out of one of the side supports and thus dropped the gears away from each other.
Now this really is not a diffucult job to repair. Removeing the inst. cluster the first time is not easy due to sticky rubber pads, once removed, start unscrewing the back of the cluster, it's pretty straight forward, just remember you DO NOT need to remove the speedo needle and speedo face plate to access the odometer. Flip it over and you will see exactly whats wrong, if in fact the axle has slipped out. I used a little glue on each end of the axle to keep it from happpening again.
BTW try not to touch the speedo face there's nothing worse than having to look at your big thumb print over the 10 MPH mark after you put it all together.