Troverman:
This is like a bad case of deja-vu for me. I have a 1995 wagon and when it turned 60K the exact same thing happened. Your car may have been factory fitted with the same self-destruct mechanism that mine has!
Seriously, I did not know what the problem was but I needed to replace my HFM wiring harness anyway. The insulation on the wires leading to the top of the thermostat was cracked a bit, and I figured that if I changed it out I might save the car from being damaged by a bad harness. Unfortunately, preventative maintenance for this car. When I was finished, the mpg was up to 24/19 and the smell had disappeared.....a nice surprise. I checked the rest of the harness for deterioration. There were sections of the harness (sections that made more contact with hot engine than the rest of the harness) in which the insulation was so brittle that it just shattered when the wire was bent slightly.
Two different part numbers for the 1995 model, depending on date of manufacture. Mine was the more expensive one at $720. I think the other was about $100 less. Not too difficult do-it-yourself job. My thinking was that replacing the harness may lessen any collateral damage if done before it really needs to be replaced (i.e. when the car breaks down). And it will need replacing, it's just a matter of time.
Brian

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Brian
1995 E320 wagon