Hi There!!
Cannot really tell you if you should sell or keep your S320. This is really a matter of how deep in love you are

. I can tell you my experience with my 99 S320:
First, 8 to 10 MPG sounds way out of spec even for city driving. I get around 17 city 22 highway. Something is off with yours.
I bought the car two years ago with 136K miles, used it as my daily driver on my 80 mile commute, no problem. I also took it on a bunch of road trips, desert and snow. Now it has 195k and still running strong.
I did do a lot of work on the car, good part is I did it myself so saved a bunch of money on labor. The first thing I had to do on it was rear shocks / swaybar links (broken). Front suspension is almost completely new too minus the lower control arms (I am afraid of the coil springs). In total over the past two years, I paid around 4K in parts, and 0 in labor. Now that the car is somewhat sorted, I follow FSS and keep my tires inflated at 32 front and 35 rear. Love the ride and won't sell in the short term, that's for sure.
My list of things that I had to do included:
Front suspension: sway-bar links, sway-bar bushings, lower balljoints, upper control arms, shocks, drag link, tie rods, steering shock absorber.
Brakes: new brakes and rotors all round + fluid flush.
Transmission: Fluid + filter + conductor plate + pilot bushing.
Differential fluid flush.
Valve cover gasket.
Water pump / thermostat (@180K).
Drivebelt system: Fan bearing bracket / idler pully / tensioner + pully.
Alternator voltage regulator(changed for peace of mind, it will get you stranded and it only costs 20 dollars, really easy to do).
PS pump reseal (cost me 20 dollars in parts and took me a couple of hours to complete. Also flushed and refilled with genuine Mercedes fluid).
I also changed the driver side window regulator, passenger side lock actuator rod, both broke around the same time at 170 K.
The car had random vacuum leaks which I was able to fix through trial and error. Make sure you have no vacuum leaks around the intake and attached sensors.
For what it is, I really don't think the car needs to be modded to be a daily driver, I enjoy it for what it is but I am an old hag

. The car keeps up with traffic very well and is very easy to drive and maneuver around town.
To sum up: if the car is sorted and you like it, it really is a very good daily.
Please feel free to PM for questions...
Take care!!
Hamzah