My wagon (1994 E320, 195,000 miles) had the exact same symptons. Turned out to be bad accumulators. It is DIYable, but it is a messy job and requires a little handiness to get the hydraulic line connector nuts threaded onto the new accumulators...

As was mentioned in a previous post, don't put this off. Non functioning accummulators can result in damge to the shock units and they are very expensive...