Joe, try disconnecting the battery for at least 12 hours. We have had 2 incidents with our 1998 E320 where after unlocking the car with the key fob the alarm activates … horn sounds and headlights flash. We're able to drive the car with the alarm activated, and after a few minutes the alarm will shutoff; however, once you hit the brakes the cycle restarts. The 2nd time this happened I drove 5 miles home, pulled into our garage and disconnected the battery overnight. Reconnected the battery the next morning, and everything was OK and nothing has happened again for the past year … knock on wood. I have no idea what triggered these 2 incidents, but it is very disconcerting to have this happen. I feel your pain.

__________________
Fred Hoelzle