I have the exact same problem with my 95 E320. I too have disconnected the horn, but my lights start flashing when the alarm goes buggy.

As mentioned earlier in this thread, I was told the unit is in the left inner wheel well, behind the trim in the trunk, and that removing this unit will solve the problem. I removed that unit, jumpered the relay in the dash, and thought all was good. Now two years later I learn that the car still flashes its lights, and the unit I removed from the fender well (part number A 124 820 19 89) is a radio amplifier.

Just like you, I'm back to square one.