Sadly, I suspect you mechanic is correct. At the very least, the head needs to be checked carefully. If it has not been replaced, the new head is much more resistant to both warping and cracking.
The coolant and oil leaks are typical of a failed head gasket, too, though, so you may in fact not have a cracked head. It is, though, probably cheaper to replace it than it is to have the work done twice!
The other prices are pretty much what I would expect. The rear wheel bearing is a pain -- seem to remember about $400 to change the one on my TE (previous owner's records).
1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!