I think I answered this in a reply you made on another thread. It's good my memory for technical issues isn't as bad as my moment to moment memory.
The logical answer is the monovalve capsule, but as Benzmac points out a defective aux water pump can also cause reduced heat.
The pump is used to keep the water flow consistant through various engine speeds. Many of the engines including the 103 motor do not produce much flow at idle. The problem with this is that the temp controller opens the water valve to compensate and then you rush off from the light and all of a sudden you get a blast of hot air.
This conditioning of the flow by use of the aux water pump is much more important in the 124 chassis. I have not seen reduced heat caused by pump problems in the 126 chassis. (then again who needs heat in Florida).
As to your smells and smoke, I doubt that the pushbutton controller would smoke more than once, and then it would do very little. I would presume you have had a pre-failure event with your blower motor or leave debris burning in the motor or resistor pack (I think the 126 still had blower resistors)
We use the heat so infrequently in Florida that some burning type smells occur the first time each season.
Owner 24 bay BSC
Bosch Master, ASE master L1
26 years MB technician