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First, if your car has the compression figures you cited above there is nothing serious wrong with it. It shows someone changed the oil regularly and the guts of the engine are in basically like new conditions. Why did you have the head gasket replaced? And, is there an offensive message that blocks the dash instruments saying "Check Engine" or any other warning? I would think misfiring and a bum camshaft timing device would generate a "check engine light" or CEL warning.
Your car does have a few added complexities that, when they go wrong, can be expensive to fix. If you are willing to keep the car until it really wears out, you will be faced with these decisions periodically. But there is no reason if the rest of the car is wearing well, and you like the car, why you should try to replace it merely because it requires maintenance. All cars eventually require some big dollar maintenance, especially if you are paying a dealer to do the work. Given reasonable care it should last more than another hundred thousand miles.
Another member on the board will hopefully be more familiar with your area and can recommend a shop. I am in CT and have spent little time in Southern California. I joined the MBClub Of America a long time ago. My dealership gives me 25% off on parts, and up to 20% off on labor based on my membership. I work on the cars I own myself for routine stuff, so I buy a lot of parts. The membership fee is paid back every year with my first significant purchase, which is usually oil. Yes, I buy my oil from the dealer because the 25% number gets it down to close to his bulk buy price, which I have never seen offered by any competitor, anywhere. So, if you end up using the dealer, make sure he gives you a break for being an MB CLub of America member. If not, find another dealer - it is not a mandatory discount.
So, the first thing I would do is ask for a detailed explanation of what the $1700 buys you. They have a list of parts and an estimate for the hours, so they know what makes up the $1700. Get it, then post it here and we will "talk."
That sensor has to be less than $50 and it can't take more than a few minutes to replace. The misfiring is likely a distributor cap, rotor, maybe a set of wires and spark plugs (you said they were ok, but how did they determine that if they were misfiring?). I would check he air cleaner too. Takes maybe an hour or an hour and a half to replace all that stuff and the cost is probably less than $170 for parts.
Check the "Buy Parts" link in the site logo at the top of the page - it is the third tab from the left on the bottom row. Navigate to your car and find your parts, and write down the prices. I checked and did not see the air temperature sensor. Call Phil (phone number is on one of the next pages after you click the link) and ask him for a price. I have found Phil to be a very good and reliable source of parts, and they come very quickly.
Those are things you can do with a little encouragement and a manual. These are all parts that come out as whole pieces and the new ones are identical and go back as whole pieces. Some are held in with screws others are threaded and a few are merely snapped into place. A dealer will charge you about another $150 to do those. A good independent will be substantially less. Unless there is another underlying problem. Your dealer has a "plan" for your 1700 dollars. From what they told you I cannot figure it out.
The camshaft business is outside my experience. It is likely either a failed electromechanical part (expensive) or an issue that starts with the bad sensor (free once the sensor is working again), or something in between (very expensive to free, like plugging a connection back in).
As these cars age, rubber parts and plastic tubes crack and abrade due to heat, exposure to oil, and vibration. Some of them are sensor lines for vacuum that is transmitted via these lines from specific places to other devices that use the vacuum to change inputs to control actuators or directly move things. Vacuum issues typically show up as hard starting, no starting or really poor running.
Your car also has a supercharger. This makes it fun to drive, but it eats gas if you are into it all the time, and they require maintenance. I believe yours is belt driven. As a minimum your drive belt needs to be examined.
The other maintenance items are good recommendations if they have not been done recently. The bulk of the items are not complicated, but they do require some familiarity with tools and how to use them. The engine and transmission mounts isolate the normal drive line vibration from the structure of the car. When they age they get stiff and collapse. This physically drops the engine in the engine bay by an inch or so and is visually apparent if you measure the mount height (no collapse, not likely a mount issue). This typically closes the spacing of the suspended parts to the stationary parts and can result in contact, forming a "sound short" where the engine or drive train vibration is directly transmitted to the car's structure. Typically a very noticeable increase in noise and vibration. New mounts deal with this very effectively. You need a couple of jacks, jack stands, drop lights and a few tools to get the old ones out and the new ones in. Do a search on engine mount replacement. Read some of the other posts and see if it something you want to do. It will be much cleaner inside your engine bay compared to those Diesels. Changing mounts will make a big difference.
The rest of the items are all things I would do myself, with the possible exception of the transmission service. You can search on each of the topics, read some posts and see if it is something you want to get involved with or not.
Good luck, Jim
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Own:
1986 Euro 190E 2.3-16 (291,000 miles),
1998 E300D TurboDiesel, 231,000 miles -purchased with 45,000,
1988 300E 5-speed 252,000 miles,
1983 240D 4-speed, purchased w/136,000, now with 222,000 miles.
2009 ML320CDI Bluetec, 89,000 miles
Owned:
1971 220D (250,000 miles plus, sold to father-in-law),
1975 240D (245,000 miles - died of body rot),
1991 350SD (176,560 miles, weakest Benz I have owned),
1999 C230 Sport (45,400 miles),
1982 240D (321,000 miles, put to sleep)
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