I'm in the middle of the same exact brake problem with my 99 c280. I had gone to the store 2 miles away with no problem. Started back home and it started to feel like a slight drag, just not the same kind of coast off the accelerator. It gradually got worse but like your wife I thought the 1 mile left to go before home would be alright. By the time I'm back in the driveway the rear rotors are glowing like a lava flow and the flames incidentally where popping up from the top of the rotor from between the cooling slots. Also like you my e brake was in good shape. I thought the problem was with the anti-tow feature of the security system (which applies the rear brakes when being stolen with a tow truck). My mechanic says no that that system passes diagnostic testing. Get this. After a complete rear brake replacement and a subsequent master cylinder swap, now the front brakes are locking up. It's been in the shop 5 weeks now going on 6. I sure would love to know what the problem with yours turned out to be.