Tom, glad to hear that at least he's not keeping the money.
As I put it together: You had a car that ran perfectly with no oil consumption. You intelligently wanted a chain service. After his well-intentioned ministrations, for reasons unproven, something crumped significantly and now it's not running as well as it did when you brought it in.
Is it his fault? Was this perfectly running engine harboring a disaster, or was there a mechanic's error? Weigh the odds. We don't know exactly what went wrong, but as someone once said, "Circumstantial evidence is a trout in the milk." There's definitely a trout in the milk here.
Bottom line: It's very difficult to avoid the conclusion that he's violated that most basic of rules, First Do No Harm. It's most frequently quoted in my profession (physician), but applicable much more widely.
One appreciates his ultimate integrity but a timing chain replacement shouldn't be a tough job. DIYers on this board do it. You shouldn't have needed anything more than a new timing chain, guides and tensioner (I say from my vantage point of 148K with no valve train attention other than a timing chain, guides and tensioner). What value has he contributed to your vehicle? None. Payment therefore deserved? None. You're going to have to pay somebody else to fix what wasn't previously wrong.
At least you're leaving on civil terms, but he doesn't touch the car again; the shop doesn't have the expertise to deal with MB. You'll have to go through the process of finding someone who does.
As a side note, one of the things that impressed me most about the shop I use is the selection of other vehicles being serviced. Anyone who's got a Ferrari, Maserati, or 1961 300SL Roadster (all of which I've seen there) as well as moms with Volvos in his clientele is keeping happy a variety of people, including some definitely demanding folks. Look at what a shop works on, ask for some references, and talk to the most manic car nuts you can find; work your local MB club for suggestions perhaps. Good luck a dozen times over!
'97 SL500, 40th anniversary edition
'04 Olds Bravada (SWMBO's)
'06 Lexus ES330
'89 560SL (sold)
SL--Anything else is just a Mercedes.
(Kudos to whoever said it first)