Absolutely right. If your wiring harness is original, the insulation on the wires probably looks just like the wire you're looking at or worse. To see if the harness is original, there's a white part number tag on the harness right by the battery which has the date of manufacture for the harness. You may have to move the battery slightly to see this tag....if I recall correctly the harness runs just behind the battery and the tag is in that vicinity. The main harness is the one that feeds from the computer behind the battery, then from the battery compartment through the top of the front firewall and into engine bay at the rear of the engine. It then runs along the top of the motor, front to back, underneath a long black plastic trim piece that is bolted to the top of the engine. Take a look at wires near the top of the thermostat and check condition (Don't wiggle them! Just a visual check.) The insulation on a bad harness will be cracked and/or falling off. But if you don't see decay, that doesn't mean the harness still isn't bad. There were 3 different harnesses for the 93-95 M104; give your VIN# when ordering the part.
The original harness was made with wires that have thermally unstable insulation. THEY WILL ALL FAIL with time and heat on these cars. It's just a matter of time before it starts causing a problem. My car had 55K miles and was 8 yrs old when I did the harness. The car was getting 14mpg and exhaust smelled horrible, but no fault codes were recorded in the computer. Changed the harness (4 hrs, but I'm slow!) and all was good. I get 18-25mpg now as I should.
Letting a harness get to the point where it is really screwing things up could damage peripheral systems, IMO. You've got renegade electical signals crossing from one wire to the next, etc.
My harness was the most expensive of the three...today's price is slightly over $1000. I got mine from Phil here on this site at Fastlane.
Do a search on "wiring harness" and grab a beer......you'll be reading for a while. I posted a replacement procedure, and there's a nice procedure written up in the Do-it-yourself section of this site.
Good luck!
Brian

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Brian
1995 E320 wagon