Got it to work.
First off, I believe the tach on a Diesel engined car is different from a Gasoline engine. The 240D has a mechanical tach and there is a tach sending unit somewhere in the engine (not sure where, or what it is -- I haven't worked with diesels).
I haven't heard of the sensor on the transmission before. Could it be possibly for the ABS to measure road speed?
Anyway -- here's the fix. I connected the terminal on the tach clearly marked with a + to the negative side of the coil. The terminal on the tach marked with a -, was connected to the positive side of the coil. Huzzah! It now works. I figured this out by accident, BTW.
Why? I do not know... my first thought was that my coil was wired backwards -- but using a voltmeter, there is 12V+ on the positive side of the coil. So its wired correctly.
So there it is, its either I got a tampered/repaired tach and the terminals were soldered in reverse, or that really how MB/VDO did it -- to confuse the general public???
Oh BTW, the tach I got was for a 4-cylinder engine, so the tach read a bit high when used in my 250T. So I installed in my 4-cyl 230TE -- works just dandy.
79 350SE (W116)
86 230E (W124)