The more I think about this, the more inclined I am to flush and bleed the clutch hydraulics. I will pressure bleed it back from the slave cylinder. If I am unable to push fluid back to the reservoir then it will confirm my suspicions that the inlet to the master cylinder from the reservoir is blocked. This will also remove any possible air in the system as you suggest or possibly remove any foreign matter blocking the inlet to the master cylinder.
In the absence of a pressure bleeder I will either run a hose from the bleed nipple on a front brake calliper to that on the slave cylinder as some manuals suggest, or purchase a new and clean pump type oil can and use that filled with brake fluid connected to the slave cylinder bleed nipple (as a friend who worked as an MB tech suggested). The outcome of this will determine if I then need to replace or repair the master cylinder.
I will post my findings when I get somewhere with it, whenever that may be. I have a bit on my plate at the moment already. My father wants me to replace the water pump in his '93 E320 coupe (M104) and my brother's '92 180E (M102) looks like it needs a head gasket (which he has hinted I might "like" to help him with). In the meantime, any other ideas re my clutch problem will be appreciated.
Duke, yours certainly has the symptoms of a failing slave cylinder.
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