No question to me. I would go for the 560.
In addition to the above good comments about age deteriation, the 560 represents about three generations of improved auto technology even though in the same shell. Airbags, ABS brakes, better fuel economy with more power, half an A/C instead of none, and significantly better front suspension geometry are a few of the major improvements. Radio, cruise, power windows, better gauges (warnings)are some of the minor improvements.
Service is lower for the 560 due to hydraulic lifters, solid state ignition, and much improved fuel system. If that isn't enough the 350 will have no resale value once put into regular service and the interior improvements are enough alone to get my vote. But then I never liked the 107 chassis anyway, if I wanted to drive a 220D with a V8, I probably would have put one in myself.
I suppose part of my feelings about 107 chassis cars comes from the fact that it has been the only MB produced that doesn't comfortably sit a 6'4" human being.
Owner 24 bay BSC
Bosch Master, ASE master L1
26 years MB technician