Hi Jeremy,
1) The airflow sensor is only needed for the EGR and ARV operation. With those disabled, the airflow sensor can be removed, or jammed open, if you want (doubt it makes much difference). The only remaining function of the EDS is the idle speed control. It has no effect on anything else.
2) That's good news about the speedo.
The odometer issue is relatively common. You can either send it out for repair, or replace it with a speedo from a newer 124 (as long as the donor comes from a car with a 2.65 axle ratio). The shift point hashmarks won't be the same but that's not a big deal, and you could re-paint them correctly if desired. After two unsuccessful repairs on my '87 trip odometer, I gave up and got one from an E320 that works perfectly. You can re-set the mileage to match your old speedo, which is what I did.
3) Oh yeah... mid/low 20's around town is in the ballpark for an '87. Should be more like mid 20's, but fuel BTU's, weight of your right foot, etc can vary that a bit.
