That dealership is obviously trying to use the car's rarity to jack up the price. Keep in mind, 1987 was the only year MB put a diesel engine in the W124 wagon, for the U.S. market. According to Nitske's book, in 1987 MB only made 2,683 of these. 297 of those were 4-matics. That very low total production number was for world sales. I haven't been able to find out how many of those made it here. I am guessing about 1000 because all the other years MB made this model, the production numbers were in the 1200-1400 range.
From what fellow members of the MBCA say, $7K is average. I won't tell you what I paid for mine (ok, the wife's), because you wouldn't believe me. Let's put it this way, they didn't realize what they had on their hands.

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1999 MB SL500 (110,000 mi)
2004 Volvo V70 2.5T (220,000 mi)
2014 Tesla Model S 85 (136,000 mi)
MBCA member