1. Probably just valve stem seals, but start with the basics first, namely check the spark plugs for excess wear, and also if you see thick, dry deposits (or possibly "glazed" looking deposits), then it's more than likely the stem seals. If there are not alot of deposits on the spark plugs, try just the spark plugs. Use ONLY the MB recommended spark plugs (Bosch Super is what I recommend). Also you may want to look at the cap and rotor and plug wires.
2. Lots of possible reasons for the 4Matic light. The transfer case itself is the usual culprit, not always though. No way to permanently disconnect the system that I am aware of.
Hope you got the car cheap.
3. After the salesman entered the code, did the radio then work, then stopped working later? If it didn't work after the salesman entered the code, what was the salesmans reaction to that? "Tough Luck" or what? Is there a radio code card with the owners manual and that's how the saleman got the number, or what's the story with the code that he used?