Is this normal
 

I have a 1996 S420 recently purchased. I notice that when I first start the car the oil light will stay on for about a block of driving before it goes out, but never comes back on. Also when idling the oil pressure drops to between 1 and 2, when I hit the gas to start driving again it goes back to close to 3. Is the oil pressure sensor bad?

Well you have normal oil pressure, I am assuming you checked the oil to make sure its at the proper level.

On my W126 that is a low oil level light, there is a float in the pan with a delay that pops the light up when the level gets just past the min mark on the dipstick. To remind those of us that never check the oil to do so. Open up the manual that came with the car and see what that light means, I suspect it's similer to mine. If so first clean the connection at the sensor, if that doesn't do it then the float is probably bad.

The oil pressure guage is what matters, if it settles on 0 then you worry!:D

If your car is parked at a steep angle in the driveway then the oil level sensor will think its low until you drive for a few seconds.

Do a Search on "Oil Tubes"