This EZL/KE temp sensor should be located on the very back of your head, closest sensor to the firewall. It is color coded BLACK and I think it's a two pin sensor.
If you have a multimeter you can test it: (resistance/ohms setting)
40c = 1.17 k ohms
60c = 0.60 k ohms
80c = 0.325 k ohms
If these readings are off, the sensor is sending bad signals to the KE control unit which would affect MPG.
If you've ever had oil in your coolant (blown head gasket), the sensors get contaminated and it's a good idea to change them out, or remove and clean them real well.
If you're really into DIY'ing I suggest you get a MB manual/CD's that describes the KEIII fuel injection system and all the variables that are involved in optimizing your fuel economy. It is relatively complex, compared to the rest of the 103 engine components. The best $30 investment I've ever made for my 300E is a digitial multimeter from Sears with duty cycle function. Comes in very handy. A "home brewed" pulse counter is great too, to read fault codes stored in your computer -- to give you a better idea of what's going on.
You can read Stevebfl's well written article under the DIY tab (engine management controls) but I don't think you'd get much out of it until you learn the basics of this system.
Here's what's involved, in a nutshell