The standard EIS and key fob will not function without the IR window on the end - that is how the EIS and fob exchange information to operate the EIS.
I have had six Mercedes key fobs, and have no idea what the "red light battery bubble" is.
The Mercedes W220 key fob is a complex device. To the best of my knowledge, these are its functions:
To operate the Electronic Ignition System (EIS), both the fob and the EIS contain inductive power coils. When you insert the fob, the EIS inductively powers the fob, and requests the security info thru the IR window. The fob responds the same way, and the EIS unlocks the slot. The fob battery (or batteries) are not involved at all.
To lock/unlock the car, the fob sends RF info to the rear window antenna, and from there to one of the main computers for security validation, and that computer turns the alarm system on/off and signals the PSE control unit to power up and activate the proper solenoid valves to apply positive or negative air pressure to perform the requested operations. The fob battery powers the fob's RF system.
An option enables the fob to send an IR signal from the end of the fob to a small IR window on one of the front outside door handles, using the fob's battery. This IR signal activates one of the main computers, which checks the security info, then activates/deactivates the alarm system, tells the PSE system to lock/unlock doors, trunk and fuel door, tells the sunroof to open/close, rolls all windows down/up, and activates the fans in the driver's seat (if equipped).
Pushing the alarm button on the fob sends an RF signal thru the rear antenna to a computer which checks security info, then activates the alarm system in the left front fender well, sounding the alarm horn.
The fob contains a metal blade key that can lock/unlock front doors, trunk and glovebox. It does not activate/deactivate the alarm, nor lock/unlock the rear doors and fuel door.
It might be possible to purchase an aftermarket key - but I doubt it. In days gone by, the dealerships had a complex system to allow them to program new blank key fobs. I do not believe that the Mercedes dealership can now program you a new key fob, and AFAIK, all key fobs are now programmed in Dallas Texas. It might be possible that an old locksmith operation still has the twenty-five year-old programming system.
I have had key fobs made/programmed for two different W220 cars. The first one was $238, including the metal blade. The second, a few years later, was about $260. The price for a fob, blade and programming varies greatly at different dealerships, so it pays to shop around. You will have to visit the dealership twice - once to prove that you own the car and to pay, and the second time to have all functions of the keys tested before delivery.