The 225/50/16's should actually perform better on an otherwise stock E320 wagon. The reason is that the stock suspension cannot take full advantage of the shorter/stiffer sidewall the 17" tire gives. The greater weight of the 17's vs the 16's may also hurt performance slightly. Not to mention that the wagon rides noticeably stiffer on 16" fare. The 17's may well be overkill. Ask Michael Curcio about his experiences, I know he did a swap to 225/50/16 on his W124 wagon.

Hope this helps...Lee