1) Slipping transmission, evident as a "flare" as you shift up through the gears. It's not unusual to get hard shifts, these are usually ok. But a soft shift indicates a worn out, very expensive transmission.
2) Remove the crankcase ventilation tube on the top of the valve cover. Start the car, put on a rubber glove, and hold your thumb firmly over the vent hole. If the engine stalls in less than 10 seconds, the rings are worn.
3) You need to plant your foot to get any performance out of the non-turbo cars. This is normal. If the transmission is downshifting correctly, then you'll get a good kick when the pedal is all the way to the floor.
4) Undo the main vacuum connection at the vacuum pump (requires a wrench). If you find any oil there, the pump is failing, run fast.
5) Make sure the central locking system works. If the doors, fuel flap, and trunk don't all close and open correctly, it means you have a vacuum leak. This usually isn't a big deal, but will require time and patience to locate. It can cause other seemingly unrelated symptoms:difficulty turning the motor off, very rough shifts, erratic braking. It can become expensive if the pump or a number of vacuum elements have failed.
6) Make sure the car is dead cold when you arrive to test it. It's always easy to start a warm Diesel. If there's any difficulty starting the car cold after one glow cycle, it's a good bet that either the injectors are bad or compression is low. The glow plug light should go out after a few seconds. If it remains on, or comes on after the car is running, there is a fault in the glow circuit.
7) Make sure all the windows work. The electric windows fail with age, figure at least $150 per if they do. Sunroof, ditto.
8) A little smoke on cold start up is normal. So is a puff of black smoke on hard accelleration. But if you have excessive smoke, it could be injectors or the timing chain, injection pump, or injectors.
9) Idle is often inconsistent on these cars. But if it's extremely rough, suspect the timing chain.
10) If you can lift the car, look at the suspension bushings and the flex disks on the driveshaft. The flex disks must be perfect: they can fail dramatically if they have cracks or go punky.
11) Climate control, as noted above. These early cars use R12 for the AC, unless converted. A fill of R12 is about $350.
12) Clicks and pops in the front suspension indicate worn bearings, ball joints, or tie rod ends. A vibration when you turn the wheel indicates bad tie rod ends. A click or clang when you apply the brake indicates worn bearings.
13) Any squirm under acceleration indicates worn rear axle components: half shafts, bushings or control arms.
14) A thud, wind-up, or delay when applying the accelerator indicates wear in the driveshaft: either the flex disks or center bearing. These are critical components, a failure will destroy the car.
15) Fuel economy of the 5 cylinder 123 Mercs is about 26mpg (US).For the 4 cylinder, about 30. the turbo cars get about 1mpg better. The SD cars get about 2 mpg less. For the 201 cars, fuel economy will be in the mid to high 30's.