Flasher relay or switch?
 

My flasher (one side only) flashes at twice the normal speed and even though the bulb works, it activates the bulb failure dash indicator whenever it is activated.

Do I replace the switch or the relay, and where is it on my 1986 560 SL?

whenever that happens on my 260E, it's almost always one of the bulbs. they sometimes do light but are at the end of their life. try changing both front and rear bulbs for the side you're experiencing the problem with and then induldge yourself into further troubleshooting mode.
good luck !