Many early model macro lenses, not only Zeiss, but Nikon, for example, produced true macro lenses that perform best at close up ranges (usually optimum @ 1:10). These lenses performed mediocre at best at infinity. Beginning in the late 70's/early 80's, lens builders began using newer optical designs, often with floating elements that would improve distant quality. What has transpired in many designs is a more "universal" macro lens, one that performs well both close-up and at infinity, but is not superb at either end.
The Zeiss 120 lens is one such creature. The newer model will yield better results at the longer distances, but, sadly, at the expense of some close-up resolution. And this is not to be construed that modern macros are not good lenses, but are more of a compromise between macro and infinity. For portrait work, this was a good thing, improving the quality even in the 3-5' range. For the best quality in the macro range, using the 120mm lens, I would go with the older version - 120/5.6.
You are also correct in that the 120 does not focus very close, and extension tubes will be necessary if you want to get closer than 1:4.
Now, all this said, I'm going to make a personal recommendation -
I'd suggest, if true macro is your interest here, to purchase the Zeiss 135/5.6 Makro lens and a Hasselblad bellows. This outfit, which I once owned, will focus from infinity down to 1:1, and is a superb macro lens in any generation configuration. I see one on Ebay right now in mint condition with a CF lens for about $2000 US. If my money tree outback were in bloom, I'd buy it myself!
Here's a link to the auction, and also one of the last images I made with my own 135 bellows lens -
http://cgi.ebay.com/ws/eBayISAPI.dl...s=I%2BC&itu=UA%2BIA%2BUCI&otn=14&po=LVI&ps=54