A random search for something completely different brought me to this thread and this forum. Therefore, I shall bestow thee with my two cents.
Don't let this beautiful car go to pasture.
It may be blasphemy on this board, but consider a GM LS-series engine swap. The LS series and its variants are still pushrod engines, but that's their only throwback feature. In every other way they are very modern, compact, lightweight, efficient, powerful and tunable powerplants, almost completely unrelated to the classic Small Block Chevy. The aftermarket is limitless.
This thread has some good information http://www.benzworld.org/forums/w126...into-w126.html
Browse Chevy | Camaro | Firebird Reviews, Performance Parts, Modifications - LS1Tech.com
for lots more information and FAQ's about which engine might work best in your car. There's a section on hybrid/conversions that will amaze you.
You could do a simple aluminum 4.8 or 5.3 if you just want a reliable 300hp powerplant at a fraction of the MB price. Or you could build a monster LS2 6 liter and eat AMG's for lunch all day.
If you want to get really creative, aside from overhead cams vs. pushrods, a current Escalade L92 is higher tech than your S500's engine, with variable valve timing, throttle-by-wire, cylinder de-activation, etc.
In So Cal you should have no problem finding a shop capable of doing a basic swap for five grand or less. All it takes is an open mind.