Same thing happened to me on my wife's 1995 C280. Turned out to be "contaminated fuel." Try using up the tank as much as possible and refilling with another brand. It may take a couple of tankfulls to completely come back to normal, but if your case is as mine, it will correct itself.
My situation was somewhat interesting, since we own both a 1995 C280 and a 2000 ML320. Due to a promotion by BP gas stations in our area, the cost for BP gasoline was cheaper than the Exxon that we normally always use. Both my wife and I filled our Mercedes with BP gasoline, but from different gas stations. As soon as we filled the tanks, the gas gauges in both vehicles started acting irregularly with hers showing empty (with the low fuel light going on and off) and my ML320 only showing 3/4 of a tank when I know it was completely filled. I am not sure what they put in BP gasoline (could be an additive that modifies the fuel dielectric and thereby effects the resistive reading of the fuel sending unit), but since switching back to Exxon the gas gauges in both cars have been working perfectly for the last 4 weeks. It took about two tanks of gas in the C280 to clear the fuel sending unit and about 3 tanks in the ML320.
Needless to say, we will be bypassing the BP and AMOCO (BP owns AMOCO) gas stations in the future.
A recent "post" on the Edmund's Town Hall ML discussion also had a similar incident since it is known that earlier 98 & 99 ML's were equipped with a problem fuel sending unit. In this case, the Mercedes dealership replaced the fuel sending unit in an ML320 that only showed 3/4 full when the vehicle actually had a full tank. Even with the new fuel sending unit the condition was not corrected. The zone Mercedes service advisor recommended draining the fuel tank and replacing with "new" fuel. This finally corrected the problem.
It would be interesting to know what brand of fuel you used and if this corrects your problem. Hope this is an easy free fix for you!