Nice car - in fact I like them so much, I have 3 at my house! Pity you are not in Australia as I could sell you my 250SE drivetrain cheap... for I am going the conversion route too. I finally have my 450SE V8 powered finnie sedan on the road and I love the sound of it, and not having to pre-plan what speed I want to go up a hill at! if you want to know about MB conversion options, you could ask me as I have done it and another mate has done 2 himself also.
I too am grappling with what drivetrain to go for, but I am sticking with benz in a benz. For domestic ideas, search in this forum - there is a W111-W108 mods thread that has some info, and search for stuff from Gwunta - he is a wheelchair bound Aussie that has a twin turno chev in his W108 show car. Very nice.
I believe if you go for a chev, you will need to consider rack and pinion steering - starter motor clearnace issues I think. I know I personally was goign the 302W option, but found the only way to avoid steering interaction issues was to sit the motor up very high - bad for handling, but simple.
The other issue with chev is the diff ratio - not ideal so your motor may rev a lot on the highway. A 6.3 diff typically came out with a 2.82 rear end ratio, compared to maybe 3.27 or 3.5-off for a 280.
As for my options, this is what I am tossing up:
a) 500 or 560 M117 V8 and trans from a W126, with a 6.3 rear end. Relatively simple, wiring is not hard (easier with series 1 than series 2), and can be had pretty cheap (well, not the diff - anything 6.3 does cost). But used motors and trans are reasonably plentiful. I bought a 500SEC for $300 that needs some valve stem seals and timing chain/guides but seems otherwise ok.
Pro's - pretty simple. Fairly cheap. Plenty of donor cars around.
Con's - economy is so-so. Handling is as goood as a swing axle car can be. When lower it, the rear camber goes silly. Cost of 6.3 rear end.
b) W210 E55 AMG driveline (around 98-2000) - M113 V8. Also graft in the whole 5-link rear suspension. Either take the whole loom of the car, or go aftermarket computer and get a guru to sort all the wiring and tuning. Mechatronic use this motor in their coupes (google it).
Pro's - hp, refinement, newer tech, better handling, better economy.
Con's - expensive (probably have to import a wreck into oz), complex (wiring and rear end), repair bills in future (parts?), will take longer to do - more chance of running out of motivation.
Here is a link to my coupe project - The Tenorite Terror coupe pictures by drew56cus - Photobucket
The black 450 car is in another folder too.