I have a similar problem but with enough varaitions to make it interesting:

1990 300te - 145,000 mi
Yesterday my blower also stopped working when I pressed the button to change the fan speed. Cleaned all fuses, replaced 30 amp strip fuse. Took apart blower housing and disconnected red (hot) and blue (ground) wires from blower motor. Before I removed the blower, I thought I'd test it one last time, so bridged the two wires and all speeds worked fine. Re-assembled all and it worked until today when I pressed the button to change the fan speed. All dead again.

I thought maybe disconnecting the power source would reset the system, so I disconnected the battery. Still dead. Fuses are all still good.

I am now totally baffled, and getting hot without AC. The only two components I can think of checking are the blower regulator and the fan speed switches in the dash. Any quick way to test before I start tearing the car apart again?