There are sleeves for the 3.5L... see this note from Germanstar ....
"Yes, we carry the sleeves for $39 each.
Ron Parker
German Star Mercedes Parts
http://www.germanstar.net
(800) 377-6598"
Of course it would take significant machine work. From what I have been able to get from folks that have been through this is they end up spending $3-4000 in parts and machinist labor to get the rebuild done. I think Noels ( Florida) has gone up, but will have a complete long block rebuilt for $7500, they are experts that do many per month, and you get a warranty. The other option is find a good 3.0L short or long block and swap it in.
Last year I was burning a quart of oil in around 300 miles. It runs great, good mileage, and is quiet. Then I had ignition switch issues last year and parked it. My car is now a hobby and not a daily driver so I have some schedule flexibility.
My current state is I started an exploration to solve this with a friend. Neither of us is a MB diesel expert, he is a pretty astute auto wrencher. So I get some time now and we did a compression test and all cylinders came out in the 420-450 psi range. We pulled the crossover pipe off the intake and see oil. Then we cleaned the turbo output that would go to the intake and started and ran the car for 30-60 seconds. We saw oil tracks coming from the turbo, not good. I'll try to post pictures ( should be attached, one after running 60 seconds then other cleaned - they are in reverse order).
I sent it off to a rebuild at turbocity. It is back on and running. I had a couple weeks of ignition issues again with the hot weather, but it has now cooled and the ignition is working again. I am 200 miles into a new oil change and it appears the consumption is less, but still significant. If I sit a light for 60 seconds, when I pull away there is a blue cloud. I'll run it a bit more and report back. I expect I am at the 5-600 miles per quart rate now.
So the question to this group of experts is .... any other possible issue such as valve guides or seals at 158K miles? Is there a test for valve seals? Maybe some kind of EGR failure? I have a head gasket kit. If I pull the head do I need new head bolts? I saw a mention on measuring them - so they appear to be the streching type.
Otherwise probably time to fix/replace the bottom end.
Chuck