First: How good are you tinkering? If you're pretty lousy don't go any
further.
If you're not affraid to dig into the speedo you can fix this yourself. I
did it on my 124 and it has worked great for more than a year now.
The problem is a loose plastic wheel on the drive end of the shaft which
contains the number reels. Pull the instrument cluster from the dash. If you
don't know how to do this create another post.
Remove the speedo and look for the plastic wheel on the end of the shaft
which meshes with the worm gear driven by the speedo cable. Do your best not
to mark up the number reels or to remove the shaft with the reels from the
mount. What I did was force the shaft enough toward the opposite end of the
mount, away from the spiral gear. My purpose was to expose the portion of
the shaft upon which the gear normally rested. I then used a spring-loaded
center punch to mar the shaft in two places where the plastic gear is
normally positioned. This is to create a sort of splined area on the shaft.
I then lightly tapped the shaft back into its original position and turned
the worm gear assembly by hand to see if everything worked properly. In my
case it did and I simply reinstalled the speedo.
Warning: If you completely remove the shaft with the reels and the
corresponding cogs which force each subsequent wheel to turn once when the
preceeding wheel turns 10 times, you're in for an interesting afternoon
trying to reassemble the unit. Should this happen you might be further ahead
to simply turn each wheel to zero and set the wheel drive cogs properly. If
you don't do this exactly right the number reels will not align perfectly
once it's reassembled. You can almost always tell when a speedo has been
fooled with by observing if each number aligns properly in the window
showing the vehicle's mileage. Whenever you look at a car with the
possibility of purchasing it make sure all of these wheels are aligned
perfectly and the numbers are all straight across from each other. However,
it is obvious the far right reel, when looking at the speedo from the
driver's seat, usually won't be aligned perfectly, but the rest should. I
looked at a speedo pictured on an MB on eBay and the numbers were not
aligned all the way across. One was out of position, a guarantee the speedo
had been turned back.
Good luck!

Hello,

I had the same problem with my '89 300e--the plastic gear was spinning on
the shaft.  I removed the cluster and then the speedometer and took it to a
clockmaker.  He knurled the shaft, pushed the gear back on along with some
epoxy and now it works as expected.  Turned out to be a $20 "while-u-wait"
kind of job.

Mike