Here's how to do it without grinding:

BTW: There was no way I was going to try and cut though the black protective ring.

So what to do:

1) remove lower dash trim on steering wheel side to reveal the ignition lock.;
2) remove the steering wheel and airbag if any (remember to disconnect both the battery and the "red" airbag connector under the passenger carpet;
3) remove the bolts that hold the steering column to the dash;
4) loosen the single allen bolt that clamps the ignition lock assembly to the steering column;
5) disconnect the anti-shifting cable (if any);
6) disconnect rear switch connector;
6) rotate the ignition lock assembly so you can see the hardened pin;

Now you have TWO options:
1 ) if you have a pin-point torch, heat ONLY the pin until it is "red-hot" and let it cool (do not quench it cool, you want to remove the "hardening");
now hit the pin hard with a hammer and punch and remove the ignition lock assembly.

OR

2) with a forged punch and hammer hit the area AROUND the pin until the pin is free to depress/move, and you'll be able to remove the ignition lock (similar to smashing the door and door-frame instead of the deadbolt).

I tried option #1, but with a butane torch, I couldn't get the pin hot-enough;

Option #2 worked like a charm!

BTW: the new W124 ignition locks do NOT have their threads tapped for the switch assembly, so you MUST tap them yourself (the dealer said to use self-tapping screws, but not for me!). Stuff a rag into the underside of the ignition lock assembly when tapping and use a little cutting oil to keep the debris from falling into the assembly.

Good luck,

:-) neil
1988 E36T AMG
1993 500E