300te O2 sensor
 

1989 300te.
My mechanic tells me I could use an O2 sensor. Recommends that I do it myself to save costs. He said "Pick one up". Upon inquiry, I find that there are several types (generic and specific) .... inexpensive (relatively) and expensive. What is the 'easiest' way for me to do this, and save $$$? I am a decent mechanic, but lousy when it comes to electrics (I can connect wires, but don't know squat about meters).... Can you be specific about what brand and where...

For your car you can use the same sensor as the Mustang with the 302 engine (Bosch). I remember doing this about 7 years ago on my 86 300E, and never had any problems with it until I sold the car a couple of years ago.
I got this write up many years ago (from the internet):

Using Generic O2 Sensors: a long-term fix. The $37 Bosch O2 sensor for the 1990 Ford Mustang 302 is available at many auto parts houses. It's applicable to many MB models as well as other marques, requiring only a connector change to be a direct replacement. After going this route once, I got to thinking about the wisdom of having to rewire these buggers when replacing every 60k miles or so. Hence an idea that worked for me the next time around: a permanent fix that makes future replacements a 5 minute snap!

Typical Parts Cost

O2 Sensor (from Mercedes-Benz dealers: ~$150.00) or
O2 Sensor (Bosch -- and equivalent to OE -- at independent parts houses: $37.00, for a 1990 Mustang 302).
Mating Connector (from a Ford dealer – part number AUVC927082, cost me $9.06 – for a 1990 Mustang 302)
Instructions

Buy the Bosch O2 sensor at AutoZone or your favorite emporium for $37 or so.
Do not cut the leads. At the local Ford dealer, buy the mating connector for the Bosch sensor.
If you use the '90 Mustang 302 sensor, the connector is p/n AUVC927082. It has a weatherproof connector with O-ring seals. I paid $9.06 for mine, and the dealer got it the same day I ordered it.
Make a diagram of the original MB sensor's leads, then cut them close to the sensor.
Discard the old sensor.
Make a diagram of the new Bosch sensor and the new Ford connector's leads.
Slip heat shrink tubing over the leads of the Ford connector, then solder each wire to its mate on the connector you removed from the MB sensor.
Heat shrink the tubing until snug on the solder joints. (Doesn't have to be weather tight).
Install the wiring harness so that the new Ford weather tight connector is outside, near the O2 sensor's installed position, and the solder joints are inside the car. Plug the original end of the harness into the car's original connectors in the passenger foot well.
Screw the new generic O2 sensor into the exhaust line, then snap its connector into the Ford connector.
You have now completed the repair and modification unless your diagnostic unit needs to be reset before the Check Engine light will go off.
You now have a pigtail that goes permanently* between the generic Bosch O2 sensor and the MB connector inside the car. To replace with another generic sensor, just unplug the weather-tight Ford connector under the car and unscrew the old sensor, screw in the new sensor and plug it right in. You may not even have to jack up the car to do this.
*Should you or a future owner ever want to use the expensive OEM sensor, just unplug and remove your homemade pigtail and the OEM connectors snap right in place.
You now have the best of both worlds, and you only have to do the figuring-out and the soldering once.

Thank you...do I have to 'worry' about which lead goes where? If this is a two wire unit, does it matter which is which? If so, how do I determine which wire from my chassis goes to the generic sensor?

Bosch has Universal sensors now that match your exact original..you just put your plug on it.

from what i read is 3 wire
2 are 12 volt + and - for the heater to the O2 sensor. The tird wire suppose to feed 450 mv to the computer so it will run normal.
Voltage less than 450 MV = engine lean so computer will dump more fuel.
Greater than 450 mv will tell computer to lean out the car.

I am going to get a voltage regulator ML 317 to drop voltage to 450mv and see if it will sail thru emission test.