Well, I'll put my $0.02 in...
Without accurate diagnosis, you have NO idea of the extent of your damage. The dealer is shooting from the hip when they talk about the engine being damaged without AT LEAST a compression test and leakdown test.
Then, if those numbers are not up to snuff, it's time to figure out what did happen. Throwing a new $26,000 engine in is a pretty extreme solution without a complete diagnosis.
Excessive rich running can damage an engine. It could possibly result in hydraulic lock if raw gas is poured in, in a high enough quantity. It would have to be quite a bit.
Also, the gas could wash the oil off the bores, resulting in ring and bore damage. Keep in mind that the oil pump was still working (assuming) and SOME of the damage would be negated by that.
I would NOT allow that dealer any more time on the car. Why?
1. They "threw" the MAS and O2 parts at the car, without really diagnosing the problem.
2. Again, they ask you to throw parts at the car. This time it's an engine. Cripes.
Suppose you do need a new engine. Metric Mercedes sells V-12 rebuilts, and I think they are quite a bit less than the MB version. (Postulating)
1998 C230 "Black Betty"