here is the detail for changing out the O2 sensor on a 1995 E320.
1) put car up on rack to allow access to underside of automobile. Always review safety aspect of what you are about to do prior to climbing underneath.
2) pull up the carpet in the front passenger side and find the blue wire coming from the area underneath the gear selector area. Follow it to the connectors and disconnect them.
3) go back underneath the car, locate the O2 sensor right about straight underneath the gear selector area and pull the "plug/seal" out from the driveshaft tunnel and pull the O2 sensor wire all the way through until the wire no longer goes through the driveshaft tunnel.
4) using a 22 mm open end wrench remove the existing sensor making sure that the old gasket comes off with it (looks kinda like a spark plug gasket).
5) install the new sensor with gasket (do not wipe off the grease that is pre-installed on the sensor threads). Be real careful to insure that you turn the wire WITH the sensor to keep from breaking any of the wires in the bundle.
6) tighten the new sensor with the 22 mm open end until you can "feel" that the gasket has seated (kind of similar to a spark plug gasket.
7) route the new wire through the hole in the driveshaft tunnel and re-install the "plug/seal" back into the hole to prevent dirt, etc from entering the cockpit.
8) Plug the wires back into their existing connectors. Reinstall the carpet/mat and you should be ready to go.
I performed the above this past Sat. and found it to be pretty simple.