That's the intake air temp sensor. If you don't have the connector hooked up to the sensor, you'll get a check engine light. Either the sensor is hooked up to the connector and is dangling somewhere in the engine bay or it wasn't part of K-Jetronic in the 1987 model year.

I'll bet you're one of the lucky M103 owners with no EGR either.

Sixto
91 300SE
87 300SDL
83 300SD