Sounds like the Neutral safety switch is defective.
Will it start in " Park ", when you wiggle the shiftlever while you're holding the key in the crank position?
It looks like this:
http://catalog.eautopartscatalog.com/mercedesshop/sophio/wizard.jsp?partner=mercedesshop&clientid=catalog.mercedesshop&baseurl=http://catalog.peachparts.com/&cookieid=1XC0ZKQX91Y60QIC7D&year=1995&make=MB&model=E-320-001&category=J&part=Neutral+Safety+Switch

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2007 C 230 Sport.