If it feels like an open diff - virtually no resistance to one wheel turning when the other is fixed in posit'on - then I would suspect it is an open diff. I believe that all 560 SELs got a limited slip diff as standard equipment on US models. You said your car is a '98 560 SL. Do you mean '88?

If it is an OE type limited slip diff, but the clutches are worn, I don't think any harm will be done, but you won't have the limited slip feature, which may only be an issue in marginal traction conditions like snow.

Limited slip diffs should have periodic fluid changes - say in the range of every 30-60K miles. As the clutches wear, particles contaminate the fluid and form a sludge at the bottom of the diff housing. Also, they probably don't add to bearing and gear longevity!

Duke