I remember after replacing the head gasket on our '90 300TE a few years ago, the horrible feeling after completing the job only to see coolant leaking at the rear right side of the head where oil had previously been leaking. Closer investigation revealed it was leaking from the O-ring at the heater hose connection (at the lifting eye) on the opposite side of the head and running around to the right side before running down the engine block. I was much happier to replace the O-ring than to have to remove the head again (especially unecessarilly). I realise that mine is an M103 and yours is an M104, but I assume they have a similar arrangement (I haven't studied the M104 in this area). I'm with the techs on this. It's sure to be that O-ring.

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107.023: 350SLC, 3-speed auto, icon gold, parchment MBtex (sold 2012 after 29 years ownership).
107.026: 500SLC, 4-speed auto, thistle green, green velour.
124.090: 300TE, 4-speed auto, arctic white, cream-beige MBtex.
201.028: 190E 2.3 Sportline, 5-speed manual, arctic white, blue leather.
201.028: 190E 2.3, 4-speed auto, blue-black, grey MBtex.
201.034: 190E 2.3-16, 5-speed manual, blue-black, black leather.