Is the blower putting out 100% when you have the fan speed on max? I have had a similar problem in that the heat and AC output has been gradually declining, which I eventually traced to a failing blower motor regulator. When the regulator goes bad (and it seems to be a common issue) the blower motor does not get the correct voltage and runs more slowly than intended.

Does your air flow blast out of the upper vents and defroster or is it just a light breeze? If your air flow is reduced, then maybe you are not getting heat to more remote parts of the cabin. The wiki has a very well written article on how to access and replace the offending part in a 1998 S500. I also have a 95 S320 and the process was virtually identical.

http://www.peachparts.com/Wikka/W140BlowerMotor