Mass Air Sensor
I can sympathize since I just got word that my wife's 1994 E320 wagon needs...a new mass air sensor! However the cost will be $690 plus tax (Cdn). This is from the MB Canada shop (all of the ones in Toronto are). The mass air sensor is $415 and the rest is labour including diagnosis.
So your quote seems a bit high.
I also asked the service rep to see if he could do something better than that. Who knows, don't as, don't get. I'm not in as good shape as you since I'm the 3rd owner and it's a '94 and it has 110,000 km. So you should get it fixed on MB's buck. Really. If it were more money I would even suggest it's worth a small claims action (yep, I'm a lawyer).