Scottie, I also have a 260e, 1988 I just replaced the valve stem seals on.
Regarding the cracked head, I think your best bet would be to find a good used head (like you already have) and rebuild it before putting it on. It would be a bummer to go through the work of replacing the head and have a problem. A rebuild should probably consist of new valve guides and valve stem seals, and regrinding or replacing the valves. You could probably use parts out of your old head.
I would not be too concerned with the bottom end of the engine. The bottom end is pretty durable in these engines and it is basically a separate repair procedure anyway - might not save you anything.
If you are able to take the head off, and put it on yourself, this job should not cost too much, I'd expect to pay about $500 for the rebuild but I have not done it yet so someone else might have a better idea of cost.\