My AC compressor made an awful squeeking sound on and off for several months before it simply started squeeking non stop for 5 minutes straight. Then it got really quiet...and smelled like burning rubber. The clutch and then the pulley side bearing failed on my Air Conditioning compressor.

The squeel you are hearing may be the alternator dying. If it siezes up and takes out the belt you will loose AC (no big deal), alternator (not too big of a deal until the battery is dead), and the water pump (Huge deal).

I vote that the squeel and the bad alternator are very related.

-Jim

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1995 S350D, Green with black leather interior.
Bought January 2008 w/ 233,xxx miles.
I did 22,000 miles during the first year of ownership.