Schab,
Well, the only one that can answer your question is yourself. Anything can be fixed if you're willing to put the time and money into it... and only you know what the limits are. The dealer has already answered the "what's it worth question". They're not in business to take a loss on a trade, so they've discounted the worth to cover their expenses... and probably more. The difference is that they probably know what's wrong with it and you don't.
Why not level the playing field? Pay another dealer the diagnostic fee to pull the codes and give you an estimate on repair. Post the codes here and someone can help you with an idea of how tough the repair is.
You also post whether or not you will do the work yourself... big difference.
Are you a "wrench turner"? This is your first post (welcome by the way!) so we aren't familiar with your abilities or past repair experiences with cars.

I'm with you... a clean '97 E420 is a nice car. Why trade it? You'd get more for it in a private sale. This forum also has a For Sale section. Personally, I don't trade cars to dealers; I believe you always lose in that transaction.

I tried to pull your profile to see where you live, but you didn't list it. I'm sure there would be several folks here interested in possible purchase.

__________________
KenP

1996 S500 W140 Coupe