Sounds like the factory alarm or an aftermarket alarm is going off. Someone must have removed the horn/siren part of it. AFAIK, the factory alarm doesn't disable the starter on those models.

Most likely cause is bad alarm engage/disengage switches in the door handle. Try this - unlock the car, open the door, turn the key to unlock again, then start the car. See if that gets you going without the flashing lights. Or try unlocking the car from the trunk or passenger door.

Sixto
95 S420
87 300SDL