key problems
 

I purchased a pre-owned 2000 E320 from the local MB dealer. I received 1 key, and the dealer ordered another key and a flat key (at no cost to me). The new key opened and locked the doors, but did not work in the ignition. A second key was ordered. This key worked. However, when I use this key I get a message in the LCD display which states "Brake Lining Wear" , and am advised to take it to the shop. The LCD also indicates "1 Malfunction". When I use the original key, I do not get this message, and the LCD indicates "No malfunctions". The vehicle has 14,500 miles, and when purchased had 13,500. I cannot imagine the brake pads needing replacement this soon. And why do I get the messge with the new key, but not the original one? Does the key have any memory chips or are these memory chips in the vehicle itself ? Any one else having problems with the electronic keys?

This sounds like a problem with the EIS, I am unsure why this key would cause a problem with the EIS (electronic ignition switch) like this.
The key has a transponder inside, actually 2 of them, one for a fixed code, which identifies a particular key to the car, and another which contains a rolling code, which changes every time the key is inserted into the EIS. There are no memories in the key in the common sense. On the newer cars, starting with the 203 chassis, the EIS sends info to the door control and seat modules which will adjust the seats and mirrors to a particular key number, also I believe the climate controls and radio settings will also be affected.
The EIS acts as a gateway between the engine CAN bus and the interior CAN bus. I believe the signals from the brake pad wear sensors is recieved by the traction control computer and the warning itself is relayed to the instrument cluster via the EIS (gateway). Again, no reason I know of why a signal like this would be transferred to the instrument cluster incorrectly and with only one key, not the other. I don't think there is an easy solution to this, going to have the dealership look at it.
Gilly ps I would also be concerned about the missing keys. The missing keys can be blocked by the dealer by using the SDS, I would look into finding out the missing key numbers and having them blocked.

We lost one of our SmartKeys, and the dealer easily blocked the lost key. We brought the other keys (including flat key) and they figured out which key was missing, and blocked it. Took a few minutes, and they did it as a courtesy, charging us nothing. We did get dinged $100 for the new key, however...

The dealer did block the other keys. Thanks. Also, the Brake Lining warning is now showing when either of the two keys are used. The MB dealer said that the brake pads usuall go about 15K miles. Is that normal for the E class?
Thanks for all of your help. This is the first Mercedes I have owned and it is indeed a different animal from the Ford I currently own and the Honda I sold.

No, under normal conditions they will last until at least the first B service (around 20K miles) and sometimes to the second A service (around 30K miles).
Gilly
ps If the brake pad warning is activated, one of the wear sensors is worn into the rotor and will need to be replaced. Call the dealerships bluff and if they say that one set of pads is worn out, tell them you want to have the old brake pad sensor back that was causing the warning to activate. You have a right to receive any old parts that you had to pay to have replaced. Better yet, ask for the old pads, too. Tell them to leave the worn sensor in the pad.