The rear drivers side door window goes up and down but will not close the last 2 inches. I can't get it to budge even by hand. What is the likely problem. No noise or anything. Anyone got a good pic/description of the panel removal and fix? Any help appreciated.

This will help you get the panel off, then you can see what is going on with the window. PeachPartsWiki: Removing the Rear Door Panel

A plastic piece on the regulator has broken, flipped over and will not allow you to fully close the window. You can try to make some sort of patch though I've never seen any patches hold up for more than a few attempts, otherwise you have to replace the regulator.

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90 300TE 4-M
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3" Exh, AEM W/B O2
Underdrive Alt. and P/S Pulleys,
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90 300CE 104.980
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Spot on! Thanks to both of the responders to my original post. This was exactly the problem. The old regulator carrier has a small plastic piece that holds the square piece that fits in the window bottom track in the right orientation and it has 2 dog ears that broke off and allowed it to flip over and invert which results in the thing bring about an inch and a half lower and hence leaves the window down a comparable amount. What a crappy design.

The door panel wiki was also a huge help. I have 2 of these W124 cars so last year I picked up a 3rd which is a 91 300D parts car for $450. I have stolen a bumper (wife hit a fender off a trailer on the freeway), radio antenna (long story but I tried running the gate at work and did that in myself on my 300D) and today a window regulator out of it (wife's E320 this time). I think the parts car paid for herself since just this regulator was $300 as the best price I could find. Fortunately I have a bunch of acreage to store it out of sight. I did this job switching out the regulator from parts car to my wife's car in less than 45 minutes start to finish. Very easy job if you have the right know-how. I think the next time I am at the junk yard I'll be grabbing a couple more of these regulators as I suspect this won't be the last one to fail.

Thanks again!!!