I feel much the same. I want MB driving experience, but don't wish to compromise on things like fuel economy.
The aspro W202 M111 engined C-Class sounds like an ideal car for you. I get mileage in the 27-35US MPG range, but have a very sound car with superb safety, great handling, and capable of making some decent fun on a mountain road.
The M111 aspro engine (94-98) is as smooth as most sixes (save maybe for an MB six) and is easy to maintain. The 97 and 98 C230 cars have the five speed tranny which aids performance. The 1998 cars have the "later" exterior and interior bits and side air bags. They also have the SmartKey, which is nice. This time last year my father bought a super clean 1998 C230 Elegance for less than the price of a new Accord. He's loving it.
Just because someone hates SUV's doesn't mean they have to drive less than a Mercedes.
On the new car front, look at the C240 (it's a six, but very economical, especially with 6-speed) or the new C230 1.8L sedan.
You might also consider an E-Class diesel. Our 1998 E300 got 35+US MPG and was a very large car. Look at the 1996-1997 non-turbos, as they seem to be less problematic that the 98-99 turbo cars.
1998 C230 "Black Betty"