That rust spot in your engine compartment is probably from battery acid leaking at some point... I have seen it on many W126s on the internet.

As far as the other rust, its not bad. Our W126 is totally rust free, but its a southeastern car. When I was looking on the internet for one though, some of the ones up north were pretty rough and much worse than yours.

I have owned three Mercedes... 1985 380SE, 1984 190D and our current 1988 300SEL... thankfully all were southern cars w/o a speck of rust. When I listed my old 1984 190D for sale on the internet, I would get emails from people up north commenting on how nice it was to see a rust free older model 190.

Everyone so far has given some really good advice. Good luck with what you decide!

How I wish I had of kept this car! (but it could not hold a light to the room/ride of the 300SEL)