I did this exact same job on my 85 300SD 2 winters ago. I found nearly the same rust problems and issues that you have found. Mine broke on the same side as yours. A couple of things come to mind:
Don't bother replacing the upper control arms/bushings. I did and didn't have to.
You will have to use a giant prybar to get the new sway bar into the upper control arm. That may be difficult in your garage. Once you bolt in the new bushings and cap it will all line up.
Don't use any lube oils on the rubber bushings especially the bushings holding the sway bar in place on the chassis.
Be careful with the brake line on the chassis it's fragile and old.
Don't worry about the rust at this point. Jack it up from the middle front under the main center support. Might have to roll it back some in your situation. The wheels must come off to finish the job. I found so much rust on my car I simply refused to even worry about it. I sprayed in a can or two of Great Stuff foam into every frame hole I could find and every rust hole then sprayed some undercoating over that.
Overall one of the most fullfilling jobs to ever undertake for a 126 Chassis for a DIY'er. Keep up the good work.

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Orland Park, IL
1985 300SD 215,000 miles