I read your post with great interest as the 95 E320 wagon has similar temp issues. I posted the following: Hot Wagon
The thread ran towards the thermostat being most likely. I have yet to change it but will soon. It is my understanding that the 104 motors do run hotter than the 103 engines.
I would be sure the temp gauge is correct and verify the coolant temperature as a starting point. Temperature sending units do go bad, although my experience is they error to the cool side.
The other area I need to explore of course is the viscous fan clutch, although I do hear the roar of the fan when hot which is supposedly a quick way to tell if it is working.
I will bleed for a potential air pocket tomorrow and see if it makes any difference.