I'll back Joe up on this. MB is close to the very bottom of the list for first-three-year reliability (JD Powers), and have been on their way there for some time. Their brand thrives on its laurels from yesteryear, but they kind of suck in the reliability department these days.

If they're paying for the replacement, take it. And if you're putting cheap gas into it, then step up to a high-quality fuel. That's the only other thing I can think of that may be goign wrong with a good engine.

Lastly, a buddy of mine bought a new MB a few years back, and it was haunted from the start by some nasty electronic gremlins that would make his dash display freak out fairly often. After trying to get it fixed 4-5 times, he sued MB under his state's lemon law, and dragged it out for as long as he could to enhance their motivation to settle, and even then, they refused to replace the most obvious component - it was either the ECU or the dash display (I forgot which). Ultimately, he got a cash settlement to make up for the additional depreciation of a screwy dashboard.

Your dealer might be more flexible and willing to find a decent settlement, but MB likely won't. If they fixed everything wrong with all of their cars on the road right now, they'd go broke.