I imagine the W123 has a recirc flap like the W126 to pull air from the outside. If that is not working properly, you could be trying to cool hot outside air all the time. If you turn the temp wheel all the way to the blue and it clicks in place, the outside air flap should close and you should be recirculating cabin air. If all of that is working, you could have a partially clogged evaporator and as such, it can't handle the extra air being passed through it. All of this is assuming the AC system is charged properly.

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1991 F250 super-cab 7.3 IDI. (rebuilt by me) Banks Sidewinder turbo, hydroboost brakes, new IP and injectors.
2003 S430 - 107K
1983 300SD - Tanoshii - mostly restored ~400K+.
1983 300SD - Good interior. Engine finally tamed ~250K.
Monark Nozzle Install Video - http://tinyurl.com/ptd2tge