arochard, had the same problem in a 190D including bouncy temp gauge. The gauge bounces because of steam build-up in the cooling system. I believe you ARE running too hot. If it's overheating under load (highway speeds) and the faster you go the hotter it gets, then I would bet on a radiator. If you overheat while idling, try to rev it up. If temp goes down, it's a water pump. If it does not, it's a temp switch ( I replaced 2 in so many years, both in the spring). However, I tried the "cool spot" method on my old rad and did not feel any. After replacing the rad everything went back to normal. on a mechanic's advise I replaced the fan clutch only to be yelled at by the regular MB certified mech. He said in 25v years of working with the MB's he had to replace a total of 2 (TWO) fan clutches.
hope it helps
1985 190D 2.2l Sold-to Brother-in-law
1996 Mustang 3.8l -"thinks it's a sports car"
1988 Grand Wagoneer - Sold (good home)
1995 Grand Cherokee Ltd -"What was I thinking??!!"