My guess is that your O2 sensor is fine. If it was bad, you'd not only get a check engine light, but your gas mileage will also drop like a rock. I don't know any owner of a 1993-1995 E320 who gets better than an average in the low 20's.
My guess is that your cat might be getting close to replacement. You may have passed smog, but it could still be not functioning like it used to be.
I believe an original cat at the dealer is about $1,800, but there are after market cats just as good that are half as much.
I had mine replaced for less than $1,000.
sells cats that are made to OE quality. They are a frequent advertiser in the Star Magazine.