Did some troubleshooting on the bouncy needle today, yes it seems like the inner cable is a tiny bit too long. Loosening the nut and pulling the dash cluster out makes the needle run smooth and the cruise work perfectly.

I added some o-rings around the post to stand it off a bit, only works if the cluster is pulled out. Ground a very small amount off the end of the cable and now it works great with the cluster out and is marginal when pushed in. It worked then bounced again, then I tugged back on the outer cable a bit and it ran smooth.

Going to trim the inner cable a tiny bit more tomorrow and hopefully that will do it.

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1993 300D 2.5L Turbo
1991 300E, looking for diesel to swap in