Thanks for the help folks. I got an air cleaner housing at my local salvage yard and I found out the wires for the alarm. I also noticed that the previous owner has installed a wire that comes out of the fuse box and connects to the ground. I am trying to find out why he put this ground there. I opened up the fuse box and found that among the wire jungle... he has cut a purple wire and has elongated it so that he could attach it to the ground. What was this purple wire used for, anyone can check in a schematic? I was also looking behind the glove compartment and found out that the car has a LOJACK theft recovery system installed, I am not sure if that has anything to do with the above.

As far as the "part" in the water heater line is concerned, I have not figured anything out yet but when I checked at the salvage yard on a 87 300E it was not existent and there was no return line to the water tank, in other words the cooling system was different and could not arrive at a conclusion. I will probably go to check with my dealer for that "part".

One more thing: How is the alarm in this car activated? Do I need to turn the key counterclockwise to activate the alarm or do I just lock it and it comes on automatically?
Again thanks for your help.