No my car is not modified. Everything is stock. I run Mobil 1. My 97 E320 is a gasoline powered Inline 6. Here is a paragraph from Car and Driver's test of the 1997 E320"
As anticipated, the E320 is a very fast cruiser. When new, we recorded a 0-to-60 time of 7.0 seconds and a quarter-mile time of 15.4 seconds at 92 mph, making this the quickest E320 weve tested. This long-term E320 was even quicker at 40,000 miles, nipping off 0-to-60 mph in 6.7 seconds and the quarter-mile in 15.1 seconds at 93 mphthats only three-tenths off the pace of our quickest times in a V-8powered E420. (The larger-engined E-class costs $5508 more than the E320 this year.)

I bet the diesel is sluggish because you are copmaring it to a gas-powered motor.