I don't want to send you on a further wild goose chase, but did you do anything with the O2 Sensor? I had a very similar situation this spring with my '87 560SEL - poor performance, very bad MPG (~7!!) and a very obvious smell of unburned gas. After no improvement following a needed plug, wire, cap, and rotor replacement, I went after the O2 sensor and the cat.
You can hook up a meter to the O2 sensor leads under the passenger's feet. Do a search and I believe you'll find some info on the type of readings you should get. Mine was dead so I replaced it. That and some tweeking of the mixture screw by ear and I'm now getting around 20 MPG on the highway if I keep my foot out of it and ~17.5 mixed and back to normal performance.
Let us know what ends up being your solution.
'87 560SEL 267K (177K on motor) Blue/Blue
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