Although it's the M104 engine in the 1994-6 cars that has the reputation for gasket failure, the M103 in the earlier cars goes in the same place -- rear offside. I know, as both my M103s have been done. On the other hand, my M104 has yet to show any signs of gasket or harness failure. From my experience and research, the gasket failures are rarely catastrophic or spectacular; many engines carry on leaking steadily for years, because owners don't notice the problem or decide to live with it. Look for dark streaking under the car and, if you spot it, get £750 knocked off the asking price.
The later M104 engine is definitely smoother, quieter and more powerful than the M103. The later five-speed box is also smoother and adds to the performance. Some prefer the mechanical simplicity of the older four-speed and speak of problems with the five speed, but the only problem I have experienced with the five-speed was caused by a main dealer short-changing the ATF.
On the bodywork, the front wings will corrode, usually at the lower front of the arch. Also, there is a weakness under the rear lights where the low back central panel meets the rear quarters.
All old cars have problems, but with the W124 they are well documented and predictable, so can be anicipated, budgeted, and worked into bargaining. The W124 has fewer than most and is a truly great car. I still can't envisage selling the 1996 E320 Coupé I've had for nine years, which replaced a 1994 four-speed one.
