A few things:
1. If it is running too hot, simply replacing the thermostat might do the trick, as the OE one might be broken.
2. Running at a much lower temp than the engine/emissions is designed for will be harmful and cause premature engine wear.
3. MB temp gauges are REAL. You should be 83-95C in warm highway driving and 95-100C in hot stop and go driving. Some M119 equipped cars (like your 500SEL) will run warmer, and there is an aftermarket fan mod that will bring temps down a bit, and it seems to work well. Don't look at the temp gauge in a Japanese car to determine that it doesn't change during driving. Their gauges are calibrated to make you believe that the engine runs about the same temp regardless of conditions.
4. I think (maybe be wrong) that most modern MB engines have their thermostat calibrated for around 87C. But, the temp has MANY variables including ambient temp, AC operation and driving conditions. Hitting 105C in heavy traffic on a 35C ambient day is not unusual, and will not harm your car in any way.
1998 C230 "Black Betty"