Since the transmission and oil leak issues have been addressed above, I'd like to add another comment.
M103 engines built prior to April of 1989 all have valve guides that wear much more rapidly than the valve guides that superceded them. They typically wear out between 80,000 and 10,000 miles, and sometimes sooner.
I would verify that this vehicle has had a valve job already. If it has not, you should budget $1500.00 or so to have this done. If the vehicle has not had a valve job, I wouldn't even hesitate to do it before starting to drive the car on a regular basis. You don't want to have to deal with the consequences of a car that burns oil over time: stuck rings on pistons, clogged catalytic converter, etc.
We are an independent Mercedes-Benz service center, and we sell pre-owened Mercedes-Benz as well. Just today, we sold an immaculate 1988 260E with 125,000 miles on it. We just did a valve job on it, and the guides were very worn. This car had had the valve stem seals replaced at 49,000 miles. We also did a 30k service, rear muffler, center resonator, rear differential mount bushings, upper and lower rear control arms, and we converted the AC to R134, installing a new receiver/drier in the process. The wood in the car was in next to new condition as well. We sold this car for $8995 with a 3 month/3600 mile powertrain warranty.
My sense is that $7000 is about the right money for an immaculate 1988 260E with 120-140k that has NOT yet had a valve job.
Also, don't let anyone tell you that doing valve stem seals alone will do the trick. Not with 120,000 miles on an 88. This would be doing nothing more than putting a Band Aid on a wound that needed stitches.
Incidentally, my daily driver is a 1988 300E with 239,000 miles. It had a valve job at 130,000 miles, and 109,000 miles later, it does not burn a drop of oil. Note: the new valve guides are much better than the old ones! I am hoping to make it to 300,000 before I need to do another valve job.
Just my $.02. Good luck.