I just got into this baby a week ago for about the same price you paid for yours:
http://users3.ev1.net/~eldave/1971MERCEDES280SE/MERCEDES.htm
Guess what, I also have 3rd gear flairing. I haven't figured out if it flairs and stays in third or if it is just flairing between the gears. Can anyone who knows how it is supposed to feel tell me if there is considerable drop between 3rd and 4th?
Anyway Denny, I'm hunting this problem myself. Let me know if you find an answer before I do.
What speed does your 3rd gear flair at? Is it happenning when you think is should be going into 4th or is it just happenning all over in third?
Good Luck,
Dave