http://www.pauldrayton.com/uploadfiles/merc/Service/W123/Index/Groups/83ClimateControlSystem.html
In other words the A/C might be having to overcome the Heat at the same time...
and losing the battle.
The fact that you get A/C clutch engagement,
along with Evaporator Condensate...tells us the A/C is working.
You may be a little low on refrigerant also...no telling without hooking up
the gauges.
Your Heater Control Valve(s) may be open and OVERCOMING the frosty air
with Nasty Flamethrower Ventilation.
This is your Service Manual (In a user friendly version):
http://www.pauldrayton.com/uploadfiles/merc/Service/W123/Index/617Tindex.html
EDIT: So, You can have either an Automatic Climate Control or the Much
More Desirable Manual Climate Control.(Your year was on the "Cusp" of the
changeover)