Don't buy an already-rebuilt trans online, instead just take the car to a *reputable* (e.g. NOT aamco, etc.) transmission shop local to you and have them rebuild it. That will be the best and most cost-effective way to get it done. You're probably looking at less than $2k, so while a transmission rebuild is a bit pricey, it's also not the end of the world either. Some of these "internet" rebuilders are pretty shady, a lot of them should really be called "repainters". You'll be better off in the long run having it done locally.

If you really want the car, you should go ahead and call him out on his B.S., but do it politely. Tell him that you know the tranny needs a rebuild, and that this needs to be worked into the deal price. Maybe if you're feeling generous, offer to split the cost with him or something, to get him down on the price. But if he won't budge, then what's going on is that he's looking for a sucker to come along and buy his story about how it would only cost $2.00 to fix but he just "hasn't had time". That seems to be the standard line. If that's what he does, then just walk away and let him wait on his sucker. There are PLENTY of cars for sale in this market at truly astonishing prices, and another one will eventually turn up that suits you.

But if the tranny is really the only significant issue, and if he will come down to a price where you are compensated for dealing with having it rectified, then I think that's a helluva lot of car for that money. Personally I'd probably jump on it. Well, actually, I guess I did already jump on it since I already have an SL600. It's truly amazing what you can buy for so little money now that the economy is in the toilet.