There may be a leak in the heater box which might show on the carpets or it might drain via the AC drains. Look under the car after it's been running for a while and is fully warmed up. The HVAC system in the 300E is very complicated and has a lot of potential leak points. Be persistent, you will find it. BTW if your head gasket was either going or gone, it would most likely cause an over pressure situation in the cooling system that would be pretty obvoius to you if it existed.
1987 BMW 325