The O2 reading seems low for a full time air pump/OC system, but since the CO is low the mixture is probably okay and the converter is getting overwhelmed with HC due to misfires, so the focus of your investigation should be on the ignition system.

Mercs have some differences in the ignition system architecture from most cars - non-resistor spark plugs with RFI resistors in the spark plug boots and distributor cap. If you use typical aftermarket parts - even is they are specified in the manufacturers catalogs they may cause problems.

You'll have to do some research on your ignition system specifics, then compare to the installed parts. Once you get the system back to OE spec with OE or EXACT OE equivalent parts, you might pass the test. Don't buy from McParts, buy from a Mercedes specialist like Fastlane.

Since your car has been tagged as a gross polluter you'll have to go through some hoops. Check www.smogcheck.ca.gov for additional info on certifying gross polluters.

Duke