I want to add more horsepower and throttle response to my 1988 420SEL. I also want to put some suspension on it. That being said, I'm not exactly an expert on Mercedes Benz's so I was just looking for some help and/or suggestions.

There is nothing that can really be done to these cars. The engines produce quite a lot of torque, and if well kept, make these cars spirited performers.

oh no doubt the cars are awesome i was just hoping to add some more horsepower and give it a little more umph if u know what i mean

Fully synthetic fluids (engine, trans, diff), Bosch Platinum Ir Fusion plugs. Check your cap, rotor, and wires. Make sure your timing chain is not stretched too much (and check tensioners). Make sure all filters are fresh and run Premium (as you should anyway). Do all that and you will notice a real difference, especially in the response.

I echo with the exception of synthetic fluids.
These cars were built in the fossil fuel era. I use only MB fluids(trans.brakes,steering,radiator,differential ). Oil changes every 2500-3000 miles with fossil oil.
I have seen and heard horror stories about how the synthetics leak in older motors.
As far as performance Nitrous!

Do Not use platinum plugs. use only non resistor copper core.

Are you aware of the overheating/melting electrode issues with copper plugs in the 116/117 engines?

Not sure, what about an engine swap? Maybe a 560. Rebuilders are selling 560 short blocks for about $4500.00US.

I introduced synthetic oil to my motor @ 188k miles.I now have 206k on it and..no leaks,minimal oil usage.I would recommend the air filter housing off a 560 motor to draw in more air!

How much are you willing to spend?

A free-flow exhaust and a fresh air-filter do wonders
I have a twin snorkel 560 airbox on my 500, it is good but, not as good as when I had a 'pod' filter on it, of course it was only really noticeable when I had my exhaust upgrades done

New plugs and a flush with injector cleaner is good too and don't forget the high-octane gas
I also run my W126 on synthetic, Shell Helix Ultra (Shells top of the range) and it is excellent
On start up when cold, my car is quiet and lively and does not leak a drop anywhere around the engine

How many miles are on her?