You might try pulling the instrument panel, removing the gauge and placing a drop of very light (jeweler's) oil on the needle's shaft.

I changed the sender on the 1983 300SD and the needle still remained erratic - the oil fixed it for once and for all. (If anyone cares, this thing bugged me for 5 years!). While you have the panel out, check that all the ground (brown wires) connections in there are clean - if not use some emery cloth to celan them up.