Car: 1997 W210 E320 165K miles, good condition

Symptoms:
* intermittent coolant leak, appears to be from rear of cylinder head
* oil leak from rear passenger side of head, under exhaust manifold
* coolant temp spikes when vehicle is stopped or parked, though it doesn't overheat
* definite oil film in coolant reservoir
* no foam or coolant on dipstick ???
* vehicle drives fine otherwise

My diagnosis: Possible cylinder head gasket failure???

This is a friend's car. He called me the other day as there was a large liquid leak under his car. I walked him through checking it out over the phone; the leak wasn't coming from a hose or the water pump. I had him dab with paper towel and he indicated it was straw color (coolant). The reservoir was low but not empty, and he said he could see drip drip drip towards the rear of the engine. He assured me the A/C wasn't on. I had him top up with water and drive it over to me.

By the time I got it, the water level had dropped again, and there was a puddle under the car, though the level was still acceptable. With jug of water in hand, I drove it about 30 miles observing its behavior. The temp would climb sharply at a stoplight, and the A/C vent output would become notably warmer, but the car never overheated. Aux fan works properly (I replaced it for him last year, so it is new). Belt driven fan also works properly.

Here's where it gets confusing - I parked it in my driveway and went out to check it the next morning. Sure enough, there was a puddle of coolant toward the back of the engine, and the level was much lower. I topped up the reservoir and started the car but could not get it to leak again. I let it idle for 45 minutes, even drove it around the block a few times, and up and down a local road, and it got hot (though never overheated) but again I just could not duplicate the leaking condition. I have driven it on and off now for the last couple of days - the last time was yesterday at lunch, and it hasn't lost one drop of coolant!

Experts, please correct me if I'm wrong. I am 99 percent sure this is a blown head gasket, but since the coolant has stopped leaking I can't be positive. A few questions:

* isn't the M103 (like in my 300E) very prone to cylinder head failure but the M104 is more robust and therefore immune to this issue?
* due to the channel design of the head, shouldn't a gasket failure lead to oil leak rather than coolant leak? I can see an oil slick along that side of the engine, but it is just not enough to create the garage floor puddles supposedly associated with a head gasket failure.
* I recall reading here that it is safe to drive on a bad gasket for a long time, as long as you didn't mind the mess, but that there was no inherent danger to the engine. As I find oil sludge in the coolant reservoir, I argue that this can't be good for the engine. If oil is getting in the coolant, then eventually coolant will get into the oil which will kill the bearings. Am I off base here?

A little bit more background info, I replaced his aux cooling fan late last year as the car was overheating in stop-and-go traffic and the A/C was cutting out. I recall when I met up with him, the temp was spiked in the red (yikes!) and I hurried to have him shut it off. Is it possible this type of on-and-off overheating led to the gasket failure?

The worst part is, I am almost certain this problem will reoccur the minute I give the car back. Even though I can't duplicate it here in my driveway.

P.S. - the tranny shifts fine, I already suspected mixture in the radiator. The radiator is in excellent condition, so I don't suspect a failure. I may have to drain the tranny fluid to be sure though. I'm just trying to avoid the added expense to my friend.

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