I have an '81 300TD that has ABS with the sensor attached to the side of the differential. Its gearing is 3.07. I also have 2.88 differential from a donor 1985 w123 sedan.

Would the 2.88 gear set swap into the housing with the ABS sensor (by someone who is an experienced differential rebuilder)? Is there something different about the newer 2.88 gears that would not work with the ABS differential housing or ABS system?

Before you do the diff swap, run some numbers and install taller rear tires that mimic the 2.88 ratio. ( Disable the ABS as it will probably trigger due to the F / R speed difference ) You might not be happy with the loss of acceleration.

Looking in a parts manual might give clues if the gears are the same in terms of the speed sensor.

With a diff mounted speed sensor, you will need to compensate for the ratio change otherwise the ABS will engage in normal braking. This is either going to be a ABS computer swap / diff tone ring swap. The speedo comes into play as well.

Also know, MB tends to move the ring gear location on the carrier for various ratios ( where the ring bolts to ) so you will probably need to use the 2.88 one.

Thanks for the info here. I went ahead and installed the 2.88 diff as is, i.e. eliminated the ABS sensor in the diff.

After installing the new diff my speedometer stopped working. I think my speedometer was actually driven by the abs sensor in diff. It's a 1981 300TD and after a bit of research it seems that model did indeed have an electronic speedo.

My first step would be to determine if you want ABS again.

If you want ABS, add a toothed wheel to the drive shaft and mount an external sensor ( you could reuse the original sensor. ) this was commonly done for aftermarket cruise control systems. Do some calculations to get the tooth count correct. If you need a fraction of a tooth, use something close then use an electronic speedometer fooler. This takes a signal and alters the pulse count.

If you don't want ABS, take a front ABS sensor and pump it into the rear signal wire. It is highly likely that you will need the above mentioned speedo fooler but it worth a try. You will need the ABS computer to be alive but disable the pump and solenoid valves.