I've seen remanufactured heads (basically ready to be bolted onto the car) for around $1000 a while ago.
You should look into that. They will probably come with a warranty, and the labor to install it should not be too bad.
$3500 sounds about right if the dealership does it.
Check the Good MB Shops section for a bunch of good shops that can be near you.
If in souther california, Check out Mr. MB Motors in Tarzana. This is my mechanic, and he usually charges half of what the dealer charges if not less than that.
Alon