I can't speak to this vintage of modulator, but my experience with older MB versions may be of some help. Yes, if you are finding ATF under the cap, the modulator is bad. Adjustments will help lessen the flaring but not eliminate them entirely. After installing a new one on a 79' 280, which are supposed to be properly set out of the box, I was still getting slippage and cranked the key clockwise quite a bit. With no improvement, I took the car to a tranny shop which pressure tested the fluid and found I had 300# of pressure in the tranny when 150# is normal (they said). Diagnosis was that because the original modulator had failed completely causing very hard shifting, which I neglected for a few weeks, a piece had broken off one of the pistons, causing the flare/slippage, and no amount of adjustment to the new modulator would cure that problem. But the point is that continuing to crank the modulator adjustment without seeing shift improvement could raise internal transmission fluild pressure to the point of blowing seals.
Fixing/replacing the modulator should cure your remaining flare problem, and while there are benz trannys that will flare for tens of thousands of miles with no other apparant problems; you should fix it ASAP as sooner or later the flaring will cause band wear to the point that transmission surgery will be needed.
On my older vintage MBs, the modulator swap was very easy, but you need to drain the ATF from the tranny first as otherwise it will pour from the modulator hole when the old unit is pulled. Draining the Torque convertor isn't needed to just swap the modulator. And of the two I've changed, there is a pin in the center of the modulator assembly that must be re-installed as it does not come with the new unit, and which may be frozen into the old modulator with dried out ATF. A quick check for vacuum leaks can be done by pulling the vacuum hose off the modulator cap and simply feeling for suction with your finger over the hose with the engine running.