Wow! Sounds as though you got a typical 4-matic with the low-mileage syndrome. The biggest problem with 4-matics is that the transfer cases (if the car sat unused for a long period of time) give major problems. I have done many of them, and it's not a pretty repair. The hydraulic lines also have a tendency to rust, and that's even worse. I remember having to replace each and every hydraulic line on a 4-matic sedan and I think the total in labor was about 51 hours. But the car sat, and the lines just went to pot. Anyways, I think if I were you, I would sell your 124 wagon and look for a 123 chassis Turbodiesel wagon. They were the best of the entire breed.
'67 250SE Cabriolet
'93 300E 2.8