I've been in and out of Mercedes diesels, and a few gassers over the years inbtween and often while owning A1 and A2 VW diesels, and a gasser Scirocco.
The Mercedes W123/126 is a different animal. The VW is a small, light, cheap car. And it shows, for better or for worse. My 81 had 645K on it and my 82 has 400K, I've had NA's and TD's and now an AAZ that was TD and is now NA. I've owned a couple TD W123's, couple W126's, one of which was an SDL with the later 3L diesel.
As one might reasonably expect from a car that cost 4x or more what a Rabbit D did, they do cost more to maintain.
Also as one might expect being considerably larger and heavier with considerably more engine power output, they do require more fuel and do not drive like a go-kart.
That being said, every single time I get back in a well sorted old Mercedes, I wonder WTF is wrong with me that I don't drive one every day.
There are no better sedans, or wagons, built in the 80's. At any price.
Much like a tired rabbit with worn out shift linkage and bad motor mounts and strut mounts and warped rotors, an old Mercedes will be miserable to drive if it isn't well kept.
Much of the negative opinion about handling and acceleration, and to a lesser degree fuel consumption, is from opinions formed of bad examples.
This is much the same as the average car-ish oriented person believing all VW diesels constantly overheat, blow headgaskets, can't keep up with traffic, smoke like crazy, vibrate in the extreme and are generally miserable vehicles to have to operate, with the one redeeming feature being the fuel mileage.
None of these popular generalizations are true when given a good example of either.
Both the W123 and W126 are stunningly GOOD cars. The brakes are essentially perfect, the handling among it's peers of that era, and even today, is excellent for such a large sedan, and the acceleration of a well tuned OM617, turbo of course, is more than adequate. My last 83 300D would bark second on dry pavement and had a flat steady acceleration that was very pleasing, and while I never compared a Mercedes to a 1.6L TD, I'd guess off hand that especially at mid and higher speeds, there would be no contest.
I believe the 1.9L AAZ in TD trim would give a good OM617 car a run for it's money however, depending on gearing. Stock for stock of course.
The Mercedes are a joy to work on all in all, they are extremely serviceable with parts and systems several orders of magnitude beyond what VW had, there are no crappy ill fitting stamped parts on those cars, no gross adjustment to account for production slop, the interior and mechanical parts quality is just overall exactly what one would expect.
Mercedes-Benz used to be Mercedes-Benz for a reason.
The vacuum system, especially pertaining to transmission shifting, is elegant and works well, IF it's in good order. If it's not it can be adjusted to crutch one along in a usable state for a very long time. My one regret is that there were not more manual transmission models sold in the US. It's a real shame as a 4 or 5spd Euro 300D is a different animal all together. Conversions are possible with 240D parts but it's less than ideal for a number of reasons, and true Euro manual stuff is hard to find.
The hydraulic SLS system works beautifully and is a godsend when you actually USE a wagon like that, you can put any even unreasonable load in that car and it will level up and drive well with it. Something I missed badly in Volvo wagons I've owned (a few), the Nivomat was never the system it should have been. Again, this is a system you have to spend a few bucks on every 100K miles or more, not counting filters and fluid changes. People buy these cars worn out and neglected and then *** and moan about repair costs when they have to catch up ten years of neglected maintenance. It happens, buy wisely and be reasonable.
They are not as cheap to maintain, but when a given thing is repaired correctly with quality parts it tends to last for a very long time. And you can actually still get quality parts, the very existence of The Mercedes Classic Center is a testament to the ongoing commitment of the manufacturer, something VAG does not provide in the slightest.
My last one was a 73 280 sedan, W114 chassis, gasser. If anything I think it handled and braked better than a W123, and was a stunningly attractive old car. The fuel mileage from the M110 dual cam carb'd six was atrocious, but otherwise as a daily driven forty year old car, original interior and no small number of mechanical parts @ 130K miles or so, it was examplarery.
I have driven and do drive VW diesels since I was 16 and I'm now 35, I grew up with them. I love them dearly and know them well.
But they are not in the same class as a Mercedes sedan of that era, nor should they be.
They have there own charms and I have enjoyed and benefited from them for many hundreds of thousands of miles.
I'd damn sure have one of these before some other cheap economy car, but that is essentially what they are.