Is this as bad as I think it is? Do I have to pull the fender to refasten this hood latch pin? Hopefully not, I have the 'glued on style' fender...

Its probably worse than I thought. My first observation and the picture above are wrong...The pin faces towards the battery, and the pin tore out of the metal. This is really bad.

What do I do now?

That looks more like the hole the rubber bumper mounts in.

Here is the actual damage that I found after looking again. Ignore the first picture. The focus is bad, but youll get the general idea.

It looks like rust helped the metal tear away where the pin goes through.

This is what happens when you do not oil the hood hinges pivot points periodically. Actually the hinge pivot seizes with rust to the bushing welded to the sheet metal. Thats what tears out the metal. It generally is not caused from rust on the panel.
Anyways it can be repaired without fender removal but is a little tedious. Welding in close quarters is involved. First you have to remove the total hinge assembley to heat the bushing that is seized solid on the pin. Then the bushing and sheet metal have to be welded back onto the side apron.
This has worked for me. You also may have to improvise a little as well to get it right or reinforce it. After this you always tend to lubricate those points at least once a year. This is a miserable little repair to do in my opinion. Yet doable. Perhaps it would be a lot easier to pull the fender. Also much more work though.

I guarantee that this bushing was oiled once...on the Mercedes assembly line.

I had no idea that this could happen. Bloody hell...Ill have better access when I pull the battery out.

Time to get out the welder...