I'd check (replace actually) your thermostat first. At 124k miles - it wouldn't hurt to change it. It could not be opening fully - causing your woes. This shouldn't be that expensive.

If this has no effect - Thoroughly clean the cooling fins of your radiator.

If this has no effect - you may want to have your cooling system drained, flushed with a citrus "decalcifying" solution (MB makes such a product, I believe) and fill with proper coolant (the red MB stuff - NOT the green stuff).

Your coolant temp sensor sounds like it's working fine - as it is activating the fans when they are supposed to come on.

Let us know how you do.

Regards,
Troy
1995 E420 72k