I have a 1984 300SD with a palomino vinyl interior, and when I bought it a year ago it had sheepskin covers on both front seats. However, they were both smelly, shedding, and stained, so they're now in the garbage. This uncovered passenger seat vinyl that's in great shape, but the driver's side had a whole bunch of holes poked in it from broken springs.
As you are now considering, I thought about just replacing the sheepskins. If I had decided to go that route, I would have bought the five star sheepskin covers from performance products for $300 for the pair. I figure that's a good compromise between the cheapo $100 pair they sell and the $490 custom tailored pair. Also note that you can select the color.
http://www.performanceproducts4benz.com/product.asp?pf_id=P883302&dept_id=6292
However, since my passenger seat vinyl and the rears are in great shape, I'm opting to just replace the vinyl cover on the driver's seat. It cost ~$350 shipped from performance products, for the bottom, back, headrest and armrest. This gets me a pristine armrest as well, and if I had wanted to cover the armrest in sheepskin that would have been another $70 or so. For the same price, I would far rather just repair the seat.
They also sell them from world upholstery and gahh, but performance products covers were substantially cheaper. I can't attest to the quality yet, because it's still in the mail. Also, if you need to replace both seats, and/or need leather (which I assume you do, unless you want to switch everything to vinyl), that will change the equation and make replacing the covers much more expensive, as you say.
I think if I was in your situation, I'd get the performance products sheepskins and armrest cover for ~$400, but keep my eyes peeled at my local pick 'n pull for a good interior.
Appendix: While i'm going to the trouble of replacing the driver's seat cover, I'm replacing the seat pad and springs with a new pad from gahh and a donor seat from a 420SEL (<150K miles!) at my local pick n' pull. I made a point of taking a passenger seat for my donor, since the springs will be in better shape, and am switching it to the rails that currently under my driver's seat. With the practice I got replacing the passenger seat pad, as well as de-railing the donor seat, I figure getting the pad on, cover on, and the rails swapped will take a day or two, tops.