If you can wiggle the knob and your dash lights would work, that identifies a common problem in these cars, a bad rheostat. Most people just solder a wire across it and leave it. However, I also think you have a ground issue because the headlight/instrument light circuit is backfeeding through your gauges and lights. This would be the first problem you need to attack, as it can cause the dash lights to not work also. You first need to pull the cluster and make sure the steel backings are all clean and tight where the sections join, this is part of the ground circuit, also make sure your connector pins on the board have good solder joints and arent corroded. A quick easy way to check a bad ground is to put a cliplead jumper between the backing and something metal on the chassis, problem should disappear when you do this. In worst case if the test works you will know its a ground issue for sure, if you can't get it fixed, you can always add a grounding wire with a ring terminal to one of the backing screws. After that is fixed the dash lights may start working again, if not, then its time to look at the rheostat.

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Chris
64 190D R.I.P.
80 240D W/617 engine -for sale
82 240D -for sale