Sounds like your head gasket has gone bad. Not too uncommon on the M103 engines. Sounds normal if there is oil in the coolant, and coolant in the oil.

I think the whole job is done for somewhere between $800 and $1000.

Another indicator of a bad head gasket are oil leaks. They usually occur at the rear of the block, but can leak at the front too. This can indicate it to, but I think the coolant in oil and vice-versa is the best way to tell.

Also, be sure to do a search on Head Gasket, there will be a wealth of info.

Good luck!

__________________
2006 E350 w/ 155k miles (Daily Driver)

Previous:
1993 300E 3.2L Sedan w/ close to about 300k miles
2003 E500 Brilliant Silver (Had 217k miles when totalled!)
1989 300E with 289,000 miles (had for <1 yr while in HI)
03 CLK 500 cabrio (Mom's)
2006 C230k (Dad's)
1999 S420 (Mom's/Dad's)
2000 C230k Sport sedans
2001 CLK320 Cabrio (Mom's)
1995 C280 My First Mercedes-Benz... (155k miles. EXCEPTIONAL AUTOMOBILE. Was Very hard to let go of!)