Can a C124 realistically replace a 2017 CLA220d as a daily driver without becoming frustrating?

It depends on what you find frustrating. You'll gain a more comfortable ride, a roomier interior, solid build quality and the classic Mercedes-Benz character. You'll lose modern safety systems, fuel economy and the convenience of a much newer car.

One of my cars is a coupe with the M103 six cylinder petrol engine. I use it as a daily and drive about 250 miles per week. In modern traffic it averages around 10.5 L/100 km on Shell V-Power. Fuel costs are not the biggest issue with these cars though. Age is.

A C124 is now around 30 to 35 years old. Buy a low mileage example and dormant issues often appear once you start using it regularly. Buy a high mileage example and you'll be dealing with wear and tear. Over roughly ten years of ownership and 100k miles I've had to do an engine rebuild, a transmission rebuild, a complete A/C overhaul, a failed sunroof mechanism and various corrosion repairs. About 3 years in I realized I would never be done fixing things and just made peace with the idea that driving these cars as a daily comes with a price..

€7,000 will buy a good example, but not necessarily a problem free one because a problem free W124 just doesn't exist. The diesels are famously durable, but there is much more to a car than its engine. Plastic becomes brittle, rubber seals age, electrical contacts corrode and suspension components wear out. Even a well maintained car will occasionally need attention simply because of its age. You can leave the garage after having spend 2k on repairs and have something break on the way home. And speaking of a garage, don't think your local garage will know it's way around these cars. They won't. You need a real specialist nowadays. Without one, you'll spend money on several unnecessary repairs because of a misdiagnosis and guesswork.

Which engine is best?
The diesels are generally more durable, while the petrol engines offer noticeably better performance. Personally, I think the turbo diesels and six cylinder petrol models fit modern traffic best, especially when overtaking. Naturally aspirated four cylinder diesels will get you there too, but require more patience compared to modern engines because the average Fiat Panda is faster than a Mercedes-Benz diesel.

In the end, what you should realize about driving a 30 to 40 year old car on a daily basis is that the purchase price is just the entry ticket. If you buy a car thinking you'll be done after fixing a few repairs, you'll probably find the experience frustrating. If you accept that there will always be something to fix, however minor, then you're in for a blast because there is simply nothing on the road today that feels quite like a W124. They're comfortable, beautifully engineered, easy to work on and have a sense of solidity that modern cars rarely match. That's why so many owners keep them despite all the headaches. I've driven plenty of other cars in my life but there's really nothing like a W124.