I had the exact same problem with the pinball flipper fuel gauage in my 1990 300D. I tried playing with the connector to the fuel gauge sensor (on the fuel tank - accessible from the trunK0 - but this did no good.
My problem was that the fuel gauge indicator would act crazy only BELOW about 1/2 a tank of fuel. I finally decided to remove the sensor from the tank and test it. All the connections looked good. The sensor was covered (about half way) with a suity kindof black stuff.
It turned out that I had filled up with a 'dirty' batch of diesel somewhere - and some stuff had settled out from the diesel onto (the outside and inside - including the wiper) the sensor. I used some gasoline as a solvent - pour it into the sensor through some small holes ontop (hold the holes on the bottom closed with something - there were only two small ones on mine) and shake vigourously. Repeat twice. This did the trick for me.
[This message has been edited by mike456 (edited 06-10-2000).]