I frequently downshift my '88 420SEL into 2nd gear to slow down from about 40-50mph. Does this cause any extra wear on the tranmission or the engine?
The reason I do this is because the brake control arm bushings (I think that's what my mechanic said they're called) are worn, and it feels like my rotors are warped when I brake at higher speeds, and sometimes makes the steering wheel vibrate quite a bit. I was told it'd be a $300 job to replace the bushings, and I'd rather wait untill it's absolutely neccisary than waste that much money now.

I wouldn't do that. It's hard on the motor and trans. Doing this might cost you a lot more in the long run.

Selectively downshifting at higher shifterpoints (rpm's), can definately stress your tranny to the point of damaging it, being that its more of a torquer than a rev'r. Continuously downshifting an automatic can yield at first to a delay in the up and downkick in the trans. Especially if she's got alotta mi. By choice I think I would rather brutalize my rotors. Speakin of which, the rotor life on my cossie isn't too far behind either....time for slots...
-Adam