You are getting quoted $1600 by the dealer because of the approximately $1250 for the MB compressor and clutch.
If you buy the $400 rebuild you will need to change the oil if you are going to use R134. You will also need to remove the speed sensor and the manifold pipe fitting from the old compressor and re-install them on the new one. You will need new O-rings for these swaps.
You may wish to pay extra for a compressor that comes with these parts.
In any case, you will need the o-rings where the manifold pipe connects to the compressor.
I am not a professional mechanic, but the removal, parts swap, and reinstallation of the compressor was not too hard, although I did not get the sensor quite right.
You should then take the car to a competent shop to have the system evac'd and charged. Do not run the compressor in the meantime.
Jeffsr has a great recent post on how to loosen and remove the drive belt. Stevebfl has a lot of informative posts on this subject. Finally I would refer you to my own epic post "Cold AC but No Money."