That's an awful dealership and you should never buy from there again.
Between my wife and I, we've owned several Mercedes, and I've never gotten a worse loaner than the car I dropped off. Also, an ML costs more than an E350 so that sounds pretty backwards.
At the time (1999) the ML was pretty entry-level. You could get a C class with a four-cylinder for less. The E class started a few thousand above the six-cylinder M class. Also, at the time, Mercedes had poor product quality (a friend with a W210 E class went through 5 window regulators in 3 years) so service loaners were in high demand. Not surprising then that some differentiation was done between the customers.
Yes, Mercedes has really turned around their quality in the last few years. My wife owned a W204 C350 for 4 years that was absolutely flawless. A couple minor repairs. Now she's in an X204 that is too new to judge but so far so good.
I heard the W211 had a much improved track record from the W210 but I don't have any personal experience.
"That's an awful dealership and you should never buy from there again."
Can you make that judgement without taking selling price of the car into consideration (discounts etc.?). Raising the dealers costs requires them to make it up somewhere. Now in a perfect world perhaps giving that level of service might get more business and they would make it up on volume. Or maybe not.
Between my wife and I, we've owned several Mercedes, and I've never gotten a worse loaner than the car I dropped off. Also, an ML costs more than an E350 so that sounds pretty backwards.