I converted my '79 NA 300TD to a turbo, it was like a rocket ship with the 3.46 rear end, I could chirp tires even in the non turbo version especially if the pavement was wet! So I put a 3.07 in it. That was a fine balance between acceleration and top end.
Next vehicle, my wife's '83 300D turbo - I put a 2.88 in it and now it is one good cruiser. I do feel the drop in acceleration (its not had the ALDA tweaked)
Unfortunately now I am comparing everything to my '87 300D turbo (OM603). Ha! (there is no comparison!)
My advise is get rid of the 3.46 and you will find the 3.07 a great worthwhile mod provided your NA car has an automatic trans (if you have a stick shift then everything would be another story of course!!!
OTOH I would advise strongly against putting a 2.88 in a NA W123, you will suffer too much from loss of acceleration and the trans will downshift excessively or you will lug the engine unless you are primarily a long haul highway driver with no heavy loads (one passenger) and take no steep inlines (like Kansas?)
That said, be aware that a differential mod in the taller direction will increase fuel mileage which is (or will soon) become more important as we head towards higher oil prices
Just be moderate and don't go all the way unless you have a turbo!
And don't worry about the speedo, they can be recalibrated, its the performance you want to go for in the first effort, worry about the readout later.