$1200 sounds like a ton of money for this job.
I did the timing chain replacement myself over the course of a weekend, including most of the guide rails, plus the all the belts and hoses while I was in there. Granted, that was on a '83 W123 240D, which isn't the same as your car, but I would expect the timing chain replacement procedure to be approximately the same.
The new timing chain will come with an extra link that is not attached to the rest of the chain. You use the crimp tool to attach this extra link to the end of the chain. The crimp tool is like a little vise that presses the link together with the rest of the chain.
That "Adaptor bit" looks like the right thing, although I thought the price was more like $350.00 instead of $35.00. I borrowed one from a local independent shop.
You'll need some way to keep the cam sprocket from turning while you're working on the chain, which *may* be the "Locking nut" deal that you refer to below. Since the sprocket has holes through it, you can just stick something in it to keep it from turning. I used the tire iron, which worked just fine.
To get the old chain off, I don't believe there is a special tool. My service manual just says to "grind open a link of the old chain" - so that's what I did, with a hand-held rotary tool such as a Dremel tool. If/when you do this, make sure you cover up the open engine to keep any bits of ground-off metal from falling down in there. An old bedsheet or a couple pieces of newspaper will work for this.
To put the new chain on, you use the open link that came with the new chain to connect the (opened) old chain and one end of the new chain, then just use a huge socket wrench to crank the engine around to pull the new chain through the engine. Make sure to keep the new chain taut while you're doing this, and make **100% SURE** that you crank the engine in the correct direction. When the new chain is all the way threaded through, you use the chain press tool to connect the two ends of the chain. !voila!
The service manual will have information on changing out the chain slide rails.. I distinctly remember sitting down and figuring out the best order to change out all the rails, chain, and tensioner.. but I don't remember that order any more; it likely wouldn't apply directly to your engine anyway. I also had to take off the radiator, fan shroud, and fan, which makes it extremely easy and convienient to change all the belts and hoses while you're in there.
My total cost for parts was about $250, if I recall correctly, and that included all the sprockets, guide rails, belts, and hoses, plus a few bucks for an icy cold refreshment to keep me going. I got the parts from an OEM supplier, but I'm sure the Parts Shop can hook you up with what you need. Total labor time was about .. uhh, about a weekend.
Now, with all that said, I'm not certain that a rough idle is reason enough to change the timing chain. It's probably worth it to have the chain stretch checked (which should be a minimal expense) to see if you need a new timing chain, before going through the trouble of changing it - or the expense of having it changed.
'83 240D, 250k miles