I had the same problem on my 2.3 and I have to agree with Paul on this one. This weekend I decided to do a little bit of crude detective work to find the problem so I unplugged my CIS/water temperature sensor and started the car cold. The surging idle did not show and the hesitation disapeared. I was also having a problem with hot starts so after driving for awhile and parking, I came back to the car and I decided to unplug this sensor again before starting. It started right up. Needless to say I am now replacing the sensor, I'll see how it goes this week.

YEEEEIKS!!
 

This sounds familiar! The old "throw parts at it till you get lucky" treatment. I'm living this nightmare, among others, right now. So far I've thrown OVP, fuel pump relay, coolant temp sensor, fuel pump, Techron and even a CIS-E unit! I have decided to take it to a Mercedes tech as soon I get my trans problem solved. I suggest you do the same.

I too am one of the W124 zealots waiting for a solution to this one...

Only did the OVP and temp sensor. Someone in another thread mentioned the air flow meter (behind the airbox). I had swapped mine a year ago with no luck.:(

surging - air conditioner causing
 

On my E420 with surging at idle, we traced it to the air conditioner compressor coming on and off. Apparently, unlike other cars, the Mercedes compressor continually goes on and off (like very few seconds). Each time it kicks in the idle drops, sometimes so much that the car hickups like someone touched your back bumper. Only way we could cure was to move the idle speed up. Turning off the air conditioner solves problem, but the dealer says there is nothing else we can do, other than turn up the idle. In winter, when I can remember to do it, I run the air in economy mode and it does not surge.