My experience (91 4matic sedan - sold with 250,000 miles with original working transfer case):
1) I would drain / refill the transfer case every oil change (5000 mi). It held 0.6 liters of Dextron II. The internal leak caused hydraulic fluid to enter the same compartment as the Dextron II, so when draining more than 0.6 liters would come out. If you don't drain it, eventually the mixed fluids would overflow onto the exhaust and cause smoking. This happened to me once before I started to drain / refill the TC every oil change.
2) I always used hydraulic fluid in the 4matic reservoir. As the car aged, I contemplated switching over to all Dextron, but mine never used enough hydraulic fluid to justify. Others had done this (Michael Cole for one). The main reason to do the swap was the cost of Mercedes hydraulic fluid vs. Dextron. As I recall the last time I bought the hydraulic fluid it was about $10 / liter. I would guess that I used about 10 liters in 250,000 miles - so I never switched.

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07 E350 4Matic wagon, 06 S430 4Matic, 99 SLK 230
retired W210 (x3), W124, W126