Oh yes I will never rescue another veggie mobile unless it was dirt cheap to free and it really nice shape. Wish I could be of more help on the 87 but I haven't discover one yet, so no experience on those engines.

If your fluid is clear, chances are its the master cylinder...they are dirt cheap. It may pay to just replace it and bleed the brakes, check for fluid on the inner to make sure its not a bad wheel cylinder.

A lose shifter is bad bushings, check the video below in location.

Automatic Shift Lever Bushing Troubleshooting and Repair on Older Mercedes by Kent Bergsma - YouTube

And here's a DIY article
http://www.benzworld.org/forums/w123-e-ce-d-cd-td/1417360-diy-console-shifter-bushing-replacement.html

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