Congrats on your new wagon. There are many advantages to the 85, not least of which is the 2.88 rear diff. It definitely helps with fuel economy. I have consistently gotten 28-30 on the highway if I keep it under 65. If you inch above 65, your mpg falls precipitously.

w123s did not ship with a limited-slip rear differential. I'm not one to hypothesize on why you're experiencing LSD-like symptoms. I suppose it's possible the previous owner did a conversion to a LSD. Perhaps you can take a photo of the diff part # for us?

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-1985 300TD - 324k mi on chassis. MB "Tauschaggregat" 617 motor + 4-speed conversion
Alaska Roadtrip 2009
-2002 E320 Wagon - 197k mi
-1998 E320 Wagon - 310k mi - retired