Thanks for the advice guys. I have until May which is when the emissions people want the car to pass the test by. The timing chain was already replaced in the $2500 repair because it was loose a little. I try to be a DIY guy but my surroundings don't really permit me to do such. (I live in the city so I can't really raise the car anywhere).
The reason the mechanic suggested replacing the whole exhaust was that I think none was OEM. The muffler was some universal so he said that it would be better just replacing the whole thing. I was thinking of going with a Timevalve exhaust while I'm at it but am still not sure.
Well I will keep you guys updated if I do decide to sell it or keep it. I have to find out if extended time period to do the repairs from the emissions people.

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1985 500SEL 124k miles
2001 Honda Civic EX