I would not throw in the towel for a rebuilt or re manufactured transmission yet!!! But you got some of your home work first, and not let your mechanic direct your decision yet !!!
OH... No mechanics in a Bottle-bad news for the 722.6....!!!
1) Check your oil, is it good? recently changed? Do you have the Mercedes measuring dip stick? Do not have one? You should have one for piece of mind - regardless if you work on your S420 or not!! Though fluid(Im guessing) is not your problem, but you need a clear foundation to work from. If you need to change it, than wait a bit..
2) You also need to inspect if the connector at the transmission has broken it's seal, and see if you do not have fluid up at the Transmission Computer located up on the car on the passenger side of the engine bay-Its the big cover with screw. It should be dry. Not wet of transmission fluid. Again, need a clear reference to start from. You cannot advance further if this computer and connector are wet.
3) If the transmission computer is dry, and connector is dry too; Fluid is good and at proper level.
4) Your problem is probably the pressure regulation spring(cheap and DIY fix) on the valve body, but before we jump into the problem. Did you get any check engine codes-did the check engine light turn on? If the check engine light came on, the conductor plate probably has to be replaced, but the codes must be read with Carsoft or MB Star.
5) No check engine light, than it is an easier fix.
Here is a drawing of the valve body:
It is piston/springs No.4 pressure regulating Sonnax P/N 68942-1
While your add it with the valve body, Replace the shift pistons, so you have sweet shifting, 68942-05k
Here is the list of parts of the sonnax parts:
Sonnax - Aftermarket replacement transmission, torque converter, and high performance automotive parts
While your down there, change the conductor plate connector, by it from Mercedes only!! P/N 203-540-02-53. If you have not changed the conductor plate, I would change it, but if want to solve your problem first. You can do it later.
Check out this video:
Installation of valve body-must be torqued down
This is a DIY that is not hard, but a little tedious, and something most shops will not do as they cannot charge you big bucks. If all you do, go after the spring. It's five to ten bucks, and re use your old oil. If you exchange your fluid(meaning get all the fluid out, and replace it with fresh fluid), and filter. Do the sonnax shift($70) kit. No conductor plate. You are in it for less than $200.
Let us know how it turns out? What you decide?You can DIY this. I have the process to do a fluid exchange on you S420, so you get 100% of the fluid out.
Best of luck,