The O2 sensor wire on my '84 500SEL is in pretty bad shape, with cracks in the outer insulation, and the inner in not much better shape. I looked around for replacement shielded wire that can withstand the heat and fluids but no luck so far. I thought I saw it once at an auto parts store, but everyone looks at me like I'm crazy. Anyone have an idea where I can get something that will work?

What you want is heat temperature resistant shrink tubing, which may sound like an oxymoron, but really does exist. You should be able to find it at electronic shops or wire distributors.

I have thought of using heatshrink tubing or other coverings as a shield around some plain-old PVC insulated shielded wire, but I have to imagine theirs somewhere to get the right stuff. From the shape of the wire on my 1984, which has never seen a winter, there has to have been improvements to a solvent/heat resistant shielded cable. If I can't find anything, I will probably use heatshrink tube and maybe some plastic split cable shielding also.

If you do a Google search on "high temperature shrink tubing" you will find your product.