Hi there,
One thing to keep in mind is that whatever engine you use, make sure you will end up with a transmission that is narrow enough to fit between the seat rails. For example, the T700R4 is wide pretty far back on the case. When I installed the 4.3L V6 in my '82 300 the transmission clearance was the biggest problem. It wouldn't be much of a trick to put a 350 Chevy V8 in with a T200 auto, I'd think. You will want an overdrive transmission to get some gas mileage, if you are planning to drive it on the road.
My '82 has a 560SL engine in it, and it has PLENTY of power, even though it starts off in 2nd gear.
The chassis is designed to accept the 110 inline six, so there's plenty of length in the engine compartment for most anything you want to install. It is lacking in width at the steering gear area, also lacks starter clearance at the steering idler post. I cut two inches off the front of the pan on my V6 installation - I'd think that you'd have to do the same on a chev V8 installation.
The Merc 560 engine is a nice, reliable, strong engine, just expensive to work on.

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Richard Wooldridge
'01 ML320
'82 300D 4.3L V6/T700R4 conversion
'82 380SL, '86 560SL engine/trans. installed
'79 450SL, digital servo update
'75 280C