I have a '92 300SE, and just changed this very expensive (for it's size, and apparent lack of complexity) part - maybe my experience will help. I think the wholesale cost on my part was about $160.

Is the switch a common failure point? Mine didn't "fail" - at least no codes, but it was leaking tranny fluid. I had just gone through the pain of pulling the transmission to replace the leaking rear main seal on the engine and had buttoned-up all of the other leaking/seeping points on the transmission.

Can the switch be tested - don't know the answer to this either. Mine has a threaded socket on it that mates to 2 plugs on the switch. Since the switch appears to be electrically isolated from the housing (the center portion is all plastic from front to back), I'd guess that 12v+ to one pin and 12v- to the other should cause the switch to cycle.

When I had it out, it appears to be a solenoid that actuates a pin which slides into a bore inside the transmission. I'm guessing that when it's actuated, it restricts fluid flow. The actuation occurs at gear-change at the same point when the computer should be retarding engine timing to reduce torque. Maybe the pin actuates an actual valve? Don't know this either. If there is a valve, and it is the problem, it's probably something inside the valve body, so maybe the tranny doesn't have to come out.

I can't see how the pin would be a failure point without there being other serious issues inside the transmission. For instance, if there's something really wrong and there's lots of metal and/or clutch material circulating in the oil, I guess it's conceivable that the pin could get stuck.

If your switch is like mine, it screws into the side of the transmission on the driver's side. (Your tranny is different for a V8, so maybe it's elsewhere). It takes a monster socket to get it out - I don't remember the size, but it's in excess of 30mm. There's a small o-ring that seals the unit at the tip - the switch housing itself has no sealing point. BE SURE to get this part when you buy the switch (if that's your problem) - I almost didn't and the results would have not been good.

The pin referred to snaps into a socket (kind of a ball & socket affair), and will be troublesome for a re-installation. When you snap the pin into the new switch, it wants to dangle and not stick straight out, which will cause it to not align with the bore when you install it. My trick was to click it into the socket, and then pull it out ever so slightly to create some friction so it would stay in line.

Maybe this is no help - maybe it is.