Pete,
The fluid is breaking down as the result of heat when it starts to look like that.Mercedes(some) goes from red to gray, but yellow or brown is breaking down, and the burned smell is obvious to all, and that is the next step of the break down step
Most 90's and above vehicles are basically under-cooled when it comes to the transmission, and most transmissions overheat. Adding a separate radiator cooler will promote the integrity of the fluid, and the obvious to cool the transmission.
The danger with any 90's Mercedes vehicles with burned fluid has a different effect.
With the old 722.3-722.5 transmissions, The perimeter seals around the transmission(on the whole outside of the shell) get brittle hard, and the reverse lips seal take the beating.
With the 722.6, The K2 bearing, and conductor plate speed sensors.
This fluid like motor oil it's primary purpose is to cool then lubricate, but transmission fluid has a additional property of acting like a hydraulic fluid with a specified viscosity.
I will shot a picture of my E320 daily driver fluid color, and it look's red!! The fluid has about 20k miles on it so far, and is three years old. My fluid on all my vehicles stays "red" for a longer time because I do a fluid exchange to get all the fluid where a filter and pan oil gets only 40% of the old fluid, so fluid replacement has to have a higher replacement interval where I can go double the service interval.
I hope this helps,
Martin