I had a similar problem in my '85 300D. I thought it was the modulator valve, ordered a new one and spent 2 hours on my back with a mirror, flashlight, and lots of cuss words changing that out. After my post-op test drive, I started searching the Interwebs and found this thread.

Went back outside, unplugged the kick-down switch under the accelerator pedal and now it shifts again.

Thanks all! (and time reading here is well-spent!)