Take out the transmission dipstick and smell it to see if it smells burnt. Compare it with a new bottle at a parts store. If there is a big difference, you may have a problem.
Next: With the car in Park (It is automatic, right) put the car into Reverse with your foot on the brake and see how long it takes before you feel the car go into reverse. It should only take about 1 second.
Is the gearbox topped up with fluid and yet not overflowed? If it is down, top it up and take a short drive. Start in the lowest gear (2 on autos) and then move it to 3rd, and then Drive. Then shift down through the gears. (Don't overspeed the engine!) This will give you some indication of the trans condition. IF the gears are clunky, if the car slips alot, if they won't go into gear at all.
Have a qualified trans shop (save $$ over the dealer) change and flush your trans fluid for you and inspect the fluid for metal particles. If there are particles, that is a particulary bad sign. If not, your trans may not be that bad.
If saving money is your main concern, you could try a good-quality transmission additive which can stop leaks and stop slips. I would reccommend Bars-Leaks or Lucas Transmission additive. (I am from the States and don't know if these products are available in the UK but similar products must be) These additives have been known to keep a trans alive and fine for years. I take it you car has the m104 3.2 Liter I-6 DOHC 24Valve engine. I have the same engine in my '95 E320 wagon. This engine should last forever except for the head gasket leak. Some examples have done over 400,000 miles without a rebuild! Unfortunantly the trans isn't quite as strong. There is also some type of adjustment available on the vaccuum transmission. On my car, the trans sometimes shifts smoothly in certain gears, and in others it shifts very firmly. Sometimes when taking off quickly the car will rev up and then "slam" into gear. Sometimes under hard kickdown the RPMS will soar to 5,000 before the trans engages the engine to the lower gear. I think most of this is the sluggish vacuum nature of the trans. We had the fluid changed by an MB Master tech independent for about $150 US. The car has exhibited all these trans symptoms since we purchased the car with only 39,000 miles on it.
I wouldn't spend the money on an "iffy" repair before they guaranteed me for a set amount of cash the car would be fixed.
Good luck.
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2002 Mercedes-Benz E320 4Matic
1995 Mercedes-Benz E320 Wagon
2005 Land Rover LR3 V8 SE
1999 Audi A8 4.2L quattro
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