You're in for some serious front end work. This is very common on older W123 chassis. Most likely the control arm bushings, and/or ball joints. I just rebuilt my 1984 300D front end. I replaced EVERY moving part in the front suspension & steering - c/a bushings, b/j's, tie rods, drag link, idler arm, steering shock, guide rod mount (inner & outer), etc. Cost me $425 for the parts and a weekend to install (spring compressor rental required for lower control arm bushings).
It also has new calipers, rotors, hoses, & Bilteins. Anyway after the dealer alignment, the camber is perfect and the car handles GREAT! Not as nice as a 124 but hey, I wasn't expecting that!
Photos of the project are here:
http://www.meimann.com/images/mercedes/W123_suspension/
Regards,