The only part of the quote I can personally validate is the man-hours for R&R the heads to replace the gaskets. ALLDATADIY quotes the flat rate for that job at 22.5 hrs. I am assuming your oil leak is from the head gasket(s). Up for consideration is checking the aluminum heads for trueness and machining if needed since that could be the reason for the leaking gasket. That can add hundreds to the job.

You did not quote mileage and whether or not you have maintenance records. If you are removing the heads you will have clear access to replacing the timing chain, tensioner and oilers, and the cam oiler fittings. The parts for those jobs are inexpensive (maybe $200 total) and requires little additional labor (maybe 3 or 4 hours). If done separately the labor would be much more for a total cost of $850 - $1000. This job should be done as preventive maintenance at about 100k miles since the engine is an "interference" design and a badly out of time or jumped chain means major damage.

From your description it sounds like the dealer did a more thorough checkout than your independent did. I would go with the dealer quote regardless of the fact that it is less expensive. One of the perks you will get is a No Bull warranty.

I have an 88 560SL and would spend the money on it. They are great cars and I just don't want to drive anything else, including a new one. Unless you overpaid vastly for the car and can afford the bill, fix it. You will be rewarded with a powerful and reliable classic car.