I had a similarily poor experience at the Mercedes dealership on the SF Peninsula near Oracle. They claimed new parts needed replacing, did incredibly poor diagnostics (if any), gave me the story about "new mechanic, been having trouble with his work" etc, etc. Maybe the economic good times of the last few years made them arrogant and careless. Now that times have changed and deposits for new cars are being cancelled right and left they'll change their tune. The good news is there are two excellent independents in the area: Kirberg Motors in Belmont and MB Garage in San Mateo. There could be more, but these are the two I've found.
'88 300E 265K
'91 300TE 155K