Hi Don!
That sounds like a really cool project. The only stumbling block I see is the actual drive shaft because MB uses rubber flex discs rather than the universal joints rodders are used to. These discs work very well on MB cars because the rear end is independant, and the differential is bolted to a sub frame, ie, there is no movement between the rear and the tranny. I don't think they would survive very long if they had to really bend like a u-joint does. Don't let me discourage you though! I'm sure a solution can be found.
I've been thinking along the same lines on building a Mileage Monger. I have an 82 Mazda RX-7 (the one that looks like a 280Z, but by Mazda) that I'm just itching to put a MB diesel into. The car is light, has excellent aerodynamics, and the engine is definitly getting pretty tired.
I look at the mileage that engine produces in my 240D (32-37 MPG) and think wow, what if that little engine was lugging around a car that weighed half as much, had 1/3 the frontal area and a .34 drag coefficient?!!! That would ROCK!
Anyway, You'll find an amazing amount of helpfull, knowledgable people here, so just ask. Someone will have an answer.
Cheers, Chris
Turbo (no it didn't come that way!) 240D running Biodiesel when I can.