Unless you pick the EC position the A/C is always engaged. This is to allow the removal of humidity and dust from the air that will then be heated appropriately.
The fact that the center duct closes indicates to me that the controller probably is controlling. The next step is to see if the heater valve is being controlled. The valve is shut with current with the controller supplying the ground circuit. The power comes from fuse #7.
Check both sides of the circuit, during heat both terminals of the valve will be "hot". If confused try pulling the connection. You should get heat with the valve disconnected.
The 124 body is quite dependent on the aux water pump for water flow at low RPMs. To be sure of valve activity drive the car around the block in low gear to maintain enough RPMs to flow water even if the aux pump isn't working.
Bosch Master, ASE Master, L1
33 years MB technician