If you unplug the wire from the sending unit, the gauge needle should go to 0 with the key ON. If it doesn't, ground out the wire with the key ON, and the needle should go to 0. If the needle does go to 0 with the wire removed, ground the wire out and it should go to 3 and peg itself. If it does all of that, the sending unit's bad...otherwise, it's a wiring issue (or you got the wrong wire, but I don't think that's likely...I don't think there are any other senders around there).
This is general troubleshooting for a sending unit; I would go out and verify this with my car, but the W123 still used a mechanical oil pressure gauge with an oil line going into the instrument cluster (they switched to electric gauges with the 126)...
But, MOST gauges will go to 0 with the wire unplugged from the sending unit, and will peg themselves at the top if the wire is held to the engine block (or other suitable ground). I'm pretty sure M-B gauges are the same way, but knowing me, they probably went the exact opposite just to spite me