A good price to pay depends on the individual car. Lower mileage, better condition, records, geographic location will determine the price. If you're looking for a specific color combo you may have to pay more or less depending on what's for sale at that point in time.
I played the scenarios over in my head a thousand times...I could've bought a 400E/E420, upgraded the suspension, changed the differential, and ended up with a car of equal or better performance to a stock 500...for several thousand dollars less.
But I wanted a 500E since they first came out. The bodywork, the Porsche connection, etc. all played into it. In the end, I decided that I'd rather have a real 500E than any other car of equal or even greater performance.
I think you need to ask yourself what you really want. If you want a great car, with lots of performance potential but don't really care about the flared fenders, Porsche's contribution, and rareness, then a 400E/E420 is a great substitute. Personally, I feel that with proper suspension tuning, the right wheels/tires, and a diff. swap, you could pull away from a stock 500E! Heck, if you're really ambitious, you could source a 5.0 liter M119 V8 from an SL or S-class (or wrecked 500E) to swap into a 400E and really have a screamer!