I purchased a 1991 300E 4matic about 3 weeks ago with 200,000 kilometres on it. Two days ago, the 4matic light went on. The MB dealer took a quick look at it and told me that most likely there was an oil leak inside the transfer case and that he would charge me 8000 cdn dollars to fix it. He called later to say that he had misquoted and it would only cost 4500 cdn dollars to fix it, but in both cases I cannot afford it. My questions are:

1. Could the light be on for something else?
2. Is it worth trying to get the transfer case replaced from anyone other than a MB dealer?
3. What happens if I just drive the car as is for a few months? Do I have to switch the lever in the engine bay to 2wd mode first?

Thank you very much (in advance) for replying. I always wanted a mercedes and it took a lot of talking to convince my spouse. I would rather not look like the complete idiot who chucked our little nest egg down the toilet.