I agree. The interior is pretty beat for that much and the dent in the fender means body work or a new fender and paint.
I know I got a good deal on mine at $3500, but there are others out there too. I've been seeing GREAT w123's for under $4000 lately.
Here's the album of my CD:
http://www.peachparts.com/shopforum/members/chad300tdt-albums-1985-300cd-turbodiesel.html
I bought it from the second owner who bought it in 1986 and it came with complete maintenance records and FSMs. Everything works, no cracks in the dash and I've put minimal effort into it since I got it. I've spent about $500 in parts to bring some things up to par, and I'm currently working out an issue with the heat that recently developed. I'll probably have to re-solder the CCU.
My point is like UriahT is saying. You're going to need to have some cash for maintenance. Stuff goes wrong with 20+ year old cars ... even the ones selling for more money and currently have no problems.