Hrm. Is this a financial decision or an emotional one? I'm biased of course, but my position is fix the critter up and run with it. But, if you're tired of it (sniff) and are going to resent the steady trickle of cash to bring her back, dump her. And definitely dump her if she rusting out.
The sad truth about our cars is that the engine often (usually) outlasts the chassis. I suppose you could buy a 126 w/ a dead engine and swap her out - might be cheaper in the long run.
I've thought about what I'll do when my car hits the same point. In the abstract I'm committed to fixing her up, but when you actually start dropping the money on a 20 year old car...
Good luck.

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Tjohn

82 300 SD
77 450 SL (gone)