I belive that S in S, SE, and SEL stands for Sonder. They sometimes say "Sonder klasse", meaning Special class. W in WXXX stand for Wagen. All models since 1926 has a W number.
W136, W188, W128, W180/W180II, W111, W112, W108, W109, W116, W126, W140, W220, and W221 are all S class.
Ferdinand Porsche was the first to introduce the S designation, meaning Sport. They also had K, meaning Kompressor. In 1927 they started to use three numbers on all models. But it was very confusing in the beginning. SSKL for example stands for Super Sport Kurz Leicht.
After the war, S was not used untill 1949 in 170S. In 1951 the 300S came, and things began rolling again. I'm not quite sure what S then meant, but it was surely not Sport.
SL means Sport Leicht, and came in 1952 as a prototype. It was the first car without a hood star, and they still come without it.
I think it's a great shame that the company managed to swap Benz with Chrysler in the company name. Whose socks were they smoking?
So I call my baby for a Benz. Usually I will say Benz instead of Mercedes Benz. Just to try to add some balance.