The 560SEL is supposed to have a 2.47 rear axle, but I've heard from other sources that some of them had a 2.65.
Regardless, to get these cars to redline in top gear it would have to have serious AMG engineering.
I do prefer the 420SEL because it gets better gas mileage and, as was said, the power difference is not noticeable(lots more weight in a 560).
I think in '88 the V8's had the compression ratios raised resulting in more power. This happened when the 750iL came around.