I`m having exactly the same problem and starting to pull my hair out. I've overhauled the brake system on few 126s before but this time is a real nightmare.
All new wheel cylinders and a new brake master. Have gone through few liters of brake fluid now, and I`m actually on the second brake master, as I thought it must be something wrong with the master cylinder.
Tried all sorts of bleeding, but the pedal goes completely to the floor. The brakes actually seem to work, but there is no resistance in the pedal. Also tried too bleed the master cylinder. No visible leaks anywhere and I`m running out of ideas.
Any suggestions would be appreciated!