Belt slipping?
 

I can hear what I think is belt slipping (squeeking noise) on the '88 420SEL when it's between 4500-6000rpm (redline) at full throttle. Sometimes it'll squeek briefly at about 5k, but, once it squeeked continuously from 4500 to 6k. Usually, it'll just squeek, briefly, right after in shifts to second gear (apx. 4k rpm, full throttle).

My question is, could this be bad? Could it damage my engine if I don't get it fixed? Any bad effects other than the noise? And, where could it be coming from? Thanks.

Check the the looseness of all of the belts then go from there. In hot weather it is very important for the belts to be properly tensioned.