Thanks everyone for the new suggestions and replies. So a few followups/replies:

1) The temperature at low or moderate loads is super stable, as it is well controlled by the thermostat. I don't see the wide swings that were described above. Only at high load is the cooling system not able to keep up
2) The earliest 220Ds did not have oil coolers. So the cooling load on my engine is greater than on later engines. This suggests that MB identified a cooling deficiency and addressed it with oil cooling.
3) The W115 FSM says "when driving under load, in the mountains and bumper to bumper traffic...the coolant temperature readout may rise to the red mark (just below 250F) without any fault on the engine." They even bolded the statement "without any fault on the engine." So just because my engine gets very hot does not indicate it is out of the realm of normalcy for w115s.
4) The W115 FSM also provides recipes for coolant/water mixtures and one of the options is ~35% antifreeze. Although all of their mixtures include an additional "anticorrosion oil"... whatever that is.
5) I don't think my engine has the normal freeze plugs of other later engines. All of the ports on the sides of the engine have 17 mm allen fittings in them. None of them are simply plugs like I think you see in the om617.

I decided to roll the dice and do a second full treatment (degrease, citric acid, rinse, rinse, rinse...). This time, I am putting it all through the heater core as well (keeping my fingers crossed). I just started that today so it will be a few days before I know the outcome. As an aside, I do use a hose to push water fast through the heater core and block. As mentioned, the flow under gravity is too slow to carry much sediment. I will post again in a few days with another photo of the rinse water and see if any progress was made.

Thanks again!

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1968 220D, w115, /8, OM615, Automatic transmission.
My 1987 300TD wagon was sold and my 2003 W210 E320 wagon was totaled (sheds tear).