It certainly won't hurt to install the 23mm isolators, but it may not help that much. If it currently has 8 mm then the increase in ride height with 23s is only about 3/4", which will not achieve the 1.25" rise you are looking for. If your currently installed isolators are thicker the rise will be less.

Keep in mind that MB did change the ride height spec for some models over the years. They dropped the 201s 10 mm beginning in '89 as I recall. If the S350 sits reasonably level with no load in the trunk then the rear ride height may be normal for that year and model.

I don't know your level of DIY expertise or whether you have any service publications, but your best bet may be to seek out a qualified MB tech who knows how to measure the ride height using the proper MB procedure and can then troubleshoot to find any problems in the rear suspension or springs. Take all the stuff out of the car when this is done, but have the fuel tank at or near full.

Duke