Warden,
Good luck with this choice; its the kind of situation that can eat you up--if you let it.
You didn't mention RUST-----I think I'd make that the prime consideration. A clean body eliminates many problems--and their expenses.
You know most of the arguments. The 123 is a bit newer design, but your particular car has enough "issues" to make the 116 very attractive.
The good thing is that both are excellent cars; one may be slightly better in your situation, but I can't help more tha that.
One more thing---Once you make the decision---DON'T LOOK BACK. And don't let anyone else nag you about " You shoulda done____". That kind of stuff is just poison. Make the best decision you can, consider as many factors as possible and go for it.

ps. How plentiful are W116 cars in your area?---Do you pull parts from junkyards--does that factor in to your decision. ( In my area, while W123 cars are not exactly plentiful in the junkyards, W116 and !26 are rare.