Are you sure you have the original gearbox rear differential combo. With older cars sometimes sometimes random replacement via second hand parts can mean a mismatch. Other possibility is are you sure you are in 3rd and not 4th? Manually select third and watch the revs then let the box "change up". The 2 litre engined w124 cars may well have a higher back axle ratio [lower gearing] to give adequate acceleration at the expense of top speed.
Sounds about right to me, i've a vague recollection that 70mph is around 3500 rpm in the smaller engined 124s (it's near as damn it 3k rpm in a 320 with a 4 speed auto). Generally speaking cars were lower geared back then 20mph/1000rpm in top wasn't uncommon and, as said, power to weight ratio influences things. In the compromise between acceleration and top speed MB typically favoured acceleration a little more than other marques- my 320 for example is one of the few cars i've owned that (on paper at least) can pull top gear all the way to the rev limiter i.e. top speed is limited by gearing rather than power.
Gearbox is the thing that ages/lets these down IMO and it's not helped by the silly 1st/2nd gear deal. Doesn't apply to all (especially later) models but many of 'em pull away in second by default with 1st gear only used when you boot it off the line and soooo short it's practically useless effectively turning a 4 speed box into one with 3 gears
Thanks all for the replies. I'm certain al is well having counted up the gears under hard and soft acceleration. There are definitely four present and correct, just a shame the fourth is not a little taller. That said, driving around at 55mph is fine with me, I averaged 40 to the gallon on a long run recently...