w123 300D transmission speedometer output
 

Recently with cruise set on the highway at 77 the speedometer fell to zero I thought the speedometer cable likely broke so I bought a new one and that didn't work. Next step was to test the speedometer itself by manually spinning the speedometer cable, and it works just fine, my hand can only get it to go up to 20MPH but it worked. My next step was to look into the spot where the cable goes on transmission to see if anything had broken off, but I cannot see any evidence of that in there, or on the old cable. Both seem to be intact. Last attempt was to get the car in the air, put it in drive and see if the speedometer cable spins when connected to the transmission. This is where I have concluded that it does not receive output from the transmission, i.e. it doesn't spin the speedo cable.

Are there any suggestions on what to do next?

Car details: 1982 300D Turbo 144,500 miles, 4 speed auto

I think you will find the nylon gear as worn out in the transmission .You can replace them do so with a pair of long nose pliers you reach in grasp it and pull the old part out .I can now see yours is metal part that the cable goes in to this is not so easy to remove as the newer type . They are made of steel and dont wear as a rule .