the wagon looks pretty nice,
hope you get it up an running soon. my fuel gauge doesnt always work either.
check out the following diy :
http://www.peachparts.com/Wikka/W124FuelSender
ps
when i fill up my car with a full tank of gas , the fuel gauge will work normally, however as soon as gasoline levels drop below 1/2 tank, the fuel gauge begins to go crazy. however, the good thing is that even though the fuel gauge is difficult to read when below 1/2 tank, the fuel reserve lamp will still turn on , i believe that this is because they are 2 different circuits.
good luck