In response to Addicted's problem:

As you discovered, the pads are not related to the ABS problem you describe.

These are some possible sources:
1) Dirty wheel sensors- these are magnetic, and pick up rust fragments. (Easy to remove and clean).
2) Dirty ABS 'sprocket'. These can get fouled with grease (sometimes when the hubs are overpacked) or misc crud. Can be observed through the sensor hole, and cleaned with compressed air or brake cleaner.
3) Excess play in hub- this can alter the clearance between the sensor and the sprocket. In really bad cases, the sensor can hit the sprocket.
4) Damaged wiring to the wheel sensor.
5) Failing wheel sensor.
6) Warped rotors, though there would be other symptoms with this, such as vibration when braking.

I would start with 1 and 2.

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1986 300E 5-Speed 240k mi.