OK, after much research, I have come up with the following setup procedure. My car is running beautifully with this setting. So I believe it is perfect...or pretty damn close!

Set the crankshaft angle to TDC with cylinder on the compression stroke. Then:

1. There are two dowel guide holes on the exhaust sprocket of the 1996 AMG M104 engine.
2. Use the dowel hole that is marked with a "U" (modified by AMG to provide 2.5 deg advance on the exhaust valves).
3. Set the 4 mm guide hole approximately 4-6 mm above the level of the head (as opposed to level with the head on the C280 M104 engine).
4. Set the inlet cam sprocket with the 4 mm guide hole about 2-4 mm below level with the head (as opposed to level with the head on the C280 M104 engine).

Exhaust cam sprocket.



Exhaust cam 4 mm guide hole setting at TDC.







Inlet cam 4 mm guide hole setting at TDC.