Re: 1954 Merc fuel level sender
I believe that you may be pumping filth into your gas tank at a gas station that has a breeched underground holding tank and probably ground water along with it. Gas floats on water, so if you have a lot of water in the tank, your fuel pump will pump water into your carb. You can burn with a fixture, but not pure water. I have an original '55 gas tank that looks like brand new on the inside, but that is only because it is an everyday driver.
Take a gas tank and fill it with a mixture of water and ethanol gas and let it sit for several months. It will corrode.
I also am using the original gas tank sending unit. It also appears to be in very good condition, again due to the constant replenishing of gas. Your sending unit appears to have sat idle in a gas tank that was not in use for many years. Several auto resto suppliers offer replacement sending units for the '55 gas tank.
The purpose of the .1 microfarad condenser is to help keep the fuel guage needle relatively steady when the car is in motion, stopping or starting from a dead stop and also serves as a noise suppressor for the old tube radio in the car.
You are going to need to get a new float also. Even if you try to polish that one up, it will descintigrate in a few months, then you will be pulling the sending unit back out again to find that the float is half gone.
Consider avoiding refuelling at the gas station you have been going to. Get gas from someplace else and keep an eye on you gas filter. If you dont have a gas filter with a "see-thru" housing, I would recommend getting one.