I have the exact same problems with my "new" "88 300 E. Turns out to be 2 different problems:

1: Poor Idle and low speed surge - I fixed that one by tightening up the vacuum fitting at thye power brake booster. Was told that the booster was probably bad, maybe a leak in the diaphram, and that I should pull the vacuum line and plug it. If the idle smoothed out then the booster needed to be replaced. the vacuum line is hard plastic and I had a hard time breaking thye line at any of the junctions so I worked my way back to the booster. Couldent get the line off the fitting so when I put the fitting back on I made sure it was seated properly and tight. What do you know, problem solved. The idle is now smooth, surging is gone and the throttle now advances evenly. Maybe this will help for you.

2. Cruise control - in researching this I found that it is probably the speedometer sensor that is bad. Haven't yet ordered a new one, just found this yesterday. Seems for the '87 and '88 124's, there was a defect in the sensor that causes this problem. Supposedly a cold solder joint on one of the wires. Gonna try removing the sensor ( back of the speedometer) and seeing if I can get to the joints and re-solder. If not, the sensor costs around $52 and I'll replace it.

Hope this helps ...