If I remember correctly yes you must remove the dipstick. That would explain it. Since it is bolted to the engine, you must remove it. It is in the procedure. Read all of this and make sure you have everything disconnected. It is very thorough so print it off and check off each item. It is held in by 2 bolts, one on the head and one where it meets the tranny going in vertically. It is easier if you push the cooler lines out the way to give you more room.
http://www.ps2cho.net/downloads/MB%20CD/W124/Index/Resources/27-600trans_removal.pdf
Before cutting it off, use a torx piece and use a firm whack rather than increasing tension as you'll just strip it for good. You will only have one shot at it, so whack it good to 'crack' it.
EDIT: I also just finished up my page on removal...it might help you with whatever you are doing to it
http://ps2cho.net/?p=130