Hi John,
Please don't blow off the EGR valve as a possibility - the reason I suspect it so strongly is that I did a search on the internet on your symptoms and it was the only thing that came up. (not on a Merc, though) Manny, typically an EGR problem will bring the NOX levels up to a very high level. John didn't say if their test included NOX info. I'm thinking that the EGR valve is the most likely problem - an exhaust leak is extremely unlikely to cause his readings, most emissions testing stations check for exhaust leaks as one of the pre-requisites for performing the test, and it would have to be an extremely huge leak that is leaking gas INTO the pipe rather than OUT of the pipe!
I have personally experienced this problem causing one of my vehicles to fail the NOX level.

Good luck!
Richard Wooldridge
'82 Mercedes 300D/4.3L V6
Etc...