I wouldn't assume you need to replace the engine. Ask your shop what they would charge to just replace the head gasket (best case), it should be significantly cheaper than changing engines. A reman head (probably worst case) should be about $600, plus labor:

http://www.mercedesengines.net/products.asp?cat=17

The problem with changing engines is that a reman engine will cost $5K and a used engine is a big gamble. Even if you find a cheap used engine, you will have to pay quite a bit in labor (unless you do it yourself) and you don't know what you will end up with. As an alternative, pull the head yourself and see what's going on while you wait for your mechanic.