To clarify Matt L's suggestion: Leave the sensor connected to the wheel, but separate the wiring connector you'll find when you follow the wires away from the sensor. Connect your voltmeter at that point. The sensor generates an AC current based on the interaction between the tip's magnetic field and the gear-like disk attached to the interior side of the hub.

I had similar symptoms in my 96 E300D, and I tried checking the sensors, too. My problem turned out to be the K40 relay, which I tried repairing twice (many thanks to Matt L for his informative posts on that topic) before I bit the bullet and bought a new one from Phil for $107 including shipping. If you've got the hundred bucks to spare, spring for a new K40. It's a 5-minute replacement, and the worst-case scenario is that you end up with a new K40 and a good spare.

Cheers,

Paul