The parking brake on my 300D is not releasing fully and causing a squeek at some speeds. How do I approach this?

You can adjust the parking brake from under the car, where the cable splits in two. You can tighten or loosen by lengthening or shortening the bolt. I'd back if off a little bit and see what happens. Make sure it's still grabbing when you push the parking brake petal down.

You may also have a cracked or broken shoe inside making it drag.

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The parking brake really doesn't work sometimes. I'll try what you said. If it doesn't then I'll go about taking a look at the shoes

The shoes need to be adjusted first.

Since the condition of the parking brake pad/springs is unknown you may want to pull the rear disc and inspect the springs and pads.

The pads are not really a "wear" item unless the brake gets left on or drags, but they can rust or otherwise become unserviceable.

A full rebuild kit isn't too pricey @ $50 http://catalog.peachparts.com/ShopByVehicle.epc?q=&yearid=1982@@1982&makeid=63@@MERCEDES+BENZ@@X&modelid=6142%3AED%7C10000129%3AMBC%7C1489@@240D&catid=241658@@Brake&subcatid=241738@@Parking+Brake+Shoe&mode=PD

But if it's only a bad spring that's less than $2 http://catalog.peachparts.com/ShopByVehicle.epc?q=1982-Mercedes--Benz-240d-Brake&yearid=1982%40%401982&makeid=63%40%40MERCEDES+BENZ%40%40X&modelid=6142%3AED%7C10000129%3AMBC%7C1489%40%40240D&catid=241658%40%40Brake&subcatid=241739@@Parking+Brake+Shoe+Sprg&mode=PD

If it only needs adjustment, that's just the time for your own labor. Sections 42-540 in the FSM for adjustment, 42-5XX generically for the pedal, cable, pads, etc.

IIRC, no special tools required, but maybe a bit fidgety with the springs and needle-nose and a screwdriver.

The parking brake on my 123 wasn't working either so I inspected the shoes first. Doesn't take too long to pull the wheel, caliper and rotor. What I found was metal backing with no brake lining at all. Not sure why they were so worn, maybe too much driving around by the PO with the parking brake on. ALso, once the lining gets so thin it just breaks apart and falls off.

A set doesn't cost too much and it was a good opturnity to clean everything up and lubricate the threads on the adjusting starwheel (mine were real hard to turn when I first tried it).

The parking brake works now, but I still have to push the pedal nearly all the way to get it to fully stop the car on a hill. I did adjust the bolt on the cable adjuster, but it didn't seem to do much. I'l have another look today. Do the springs and cables strech enough to cause problems?

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'95 E300D ("Tank") - 231,000 miles
'79 240D ("Biscuit") - 197,250 miles (Sold)
'83 240D ("Ding-Ding") - 217,000 miles (Death by deer)
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"Back off, man. I’m a scientist” ~ Peter Venkman

Going from a completely bad shoe to new shoes may mean there was a problem before. If they were stuck or dragging, it's possible the PO put a lot of slack in the cable rather than fix the shoes.

The FSM says AFTER setting the shoes you can set the cable to engage the brake with 4-6 teeth travel on the pedal. It also says setting the cable shouldn't be needed for a normal adjustment unless there's a cable adjustment or replacement.

Well, maybe it is normal then. It tends to fully engage around 5 or 6 clicks, it just seemed like that was too much for brand new shoes. The first few times I drove it after the replacement, I would go back and sniff the rear wheels . . . never detected any burning smell, so I assume they are not dragging now.

__________________
'95 E300D ("Tank") - 231,000 miles
'79 240D ("Biscuit") - 197,250 miles (Sold)
'83 240D ("Ding-Ding") - 217,000 miles (Death by deer)
______________________________________

"Back off, man. I’m a scientist” ~ Peter Venkman

Note on the W123:
You can access the teeth by removing one lug nut and moving the wheel so that the lug nut hole is a few degrees toward the front of the car from the top. So, if it were a clock, it would be at approximately the 11:00 to 11:30 position on the left side, or the 12:30 to 1:00 position on the right. Use a flashlight to see the adjustment gear teeth inside the hole. You can also see the threads of the adjuster beside the wheel (or not if it is screwed all the way closed). To tighten the brakes on left side, push the teeth down. To tighten the brakes on right side, push the teeth up.