Window fogging with heater on

You can use a anti foging treatment on the glass. It’s a silicone alcohol spray of sorts. I use it to treat and clean my glasses constantly in the winter months.

You may have a leak in the heater core, it is very common on W123 chassis after 20 years, especially if insufficient or incorrect coolant (antifreeze) has been used. A pinhole in core will allow just enough moisture to accumulate in the heater box assembly to cause window fogging but not create any puddles or wetness on carpeting. A telltale sign is sweet smell of antifreeze in the compartment. Slightly oily streaking on windows is another indication coolant is airborne and being deposited on glass. Small leaks will not cause significant loss of level in the radiator, thus pinhole can escape detection for some period of time. Using a desiccant (Dri-Z-Air or similar) to remove all compartment moisture is first step. Once compartment is completely dried out, start engine and let it warm up. Run the blower with Climate Control system set to room temperature (no AC no heat). If the glass starts to fog, then it is likely heater core is faulty. Accessing it is complicated, necessitating removal of dashboard and all Climate Control components in the passenger compartment. Before diving into such a complex task, have the cooling system pressure tested to validate integrity. It is strongly advised to use genuine Mercedes coolant, no aftermarket brands, as the Germans know exactly what corrosion issues exist and how to maximize life of the alloys utilized. While you are inspecting things, check the front and rear glass rubber seals. They are notorious for leaking at the corners when seals reach about 15 years age. Trace amounts of moisture can accumulate in places one never typically sees.