Finally got some free time to get under the car to connect a pressure gauge. I think I found the problem.
These are working pressure readings:
Cold engine start @ P, 800-900 rpm , modulator vacuum line connected – 100 psi
60 deg engine @ P, 700 rpm, modulator vacuum line connected – 65-70 psi
70 deg engine @ D, 600 rpm, modulator vacuum line connected – 40 psi
70 deg engine @ P, 700 rpm, modulator vacuum line disconnected – 50 psi
70 deg engine @ P, 1000 rpm, modulator vacuum line disconnected – 75 psi
70 deg engine @ D, 600 rpm, modulator vacuum line disconnected – 30 psi
Drove the car for 10 min to warm up the transmission
90 deg engine @ N, 700 rpm, modulator vacuum line connected – 45 psi
90 deg engine @ N, 1000 rpm, modulator vacuum line connected – 75 psi
Drove the car for another 10 min to warm up the transmission
90 deg engine @ P, 1000 rpm, modulator vacuum line connected – 60 psi
90 deg engine @ R, 600 rpm, modulator vacuum line connected – 25 psi
90 deg engine @ D, 600 rpm, modulator vacuum line connected – 20 psi
90 deg engine @ P, 1500 rpm, modulator vacuum line connected – 100 psi

I found some info on 722.XXX transmission, it says I should read 75-90 psi on hot transmission @ D.
Another reference tells me for gas car I should read in Park @ 1000 rpm with modulator vacuum line removed:
E320................174-203 psi
E420 & S420.....160-174 psi
S500 & SL500...186-215 psi
I assume working pressure for C280 should be close to these figures. I'm supprised the car actually drives. Clearly, working pressure is too low, this explains why it slips when is getting hot. The valve body is coming off for inspection. I guess I’ve messed up assembling it.

Anyone has good reference material for valve body rebuild? All I have is not the easiest to read and see the pictures to make sure all valves are installed in the right order?