My '87 260E 110K has started behaving exactly as you described.
Here are my symptoms:
Oxygen sensor light flashing on and off accompanied by the engine stalling and losing power but not completely dying. This happens at all RPM's, at all different loads, hot and cold but mainly hot.
Computer replaced 3 months ago (with used). New oxygen sensor 3 months ago. New overvoltage relay 3 months ago. New cap, rotor, and wires 2 months ago. New tires, brakes and rotors all the way around - not that it should help.
New oxygen sensor within the last 3 days, computer swapped out during diagnosis - no change. Wiring harness inspected - looked good.
Shop has tried the temperature sensor but now thinks it could be the computer again.