You guys called it. It was that metal linkage between the anti-sway (anti-roll) bar and the sensor. One end (the roll bar end) had deteriorated enough to where the little ball joint had separated and popped off. Rust all in there. The rubber that was in there holding the ball joint was pretty much shredded from 20 years of wear. Fortunately, I had a spare one sitting on the anti-roll bar eventually intended for the S600, and it looked like it was in good shape, so I applied some spray lithium grease in the joint and sealed it up with MB-brand green axle grease. Then I took it for a test drive.
Not only did the car go right back to its proper height, but actually the rear end is just maybe half an inch or so higher in the rear. Looks a little more balanced that way than before. Furthermore, the ride is a bit more firm in Sport 1 than it had been. It feels a lot like the '03 S430 now, come to think of it. The wife is out with it now taking it for a spin.
Moral: if your car feels a little soft in the suspension, check that metal linkage. They're still available from Mercedes-Benz, so I'm getting one for Dad's car (also 20 years old now) and the '03 S430. They're not showing problems now, but the time will come.
One more thing. Checking the car out with SDS showed that the AIRmatic system itself on this car is in great shape. That thing's holding air like a politician holds campaign contributions.
