I read in a German forum that the new diesel-unit of the Merc may not come this year, or at least late 2008, because of last testings. May not be true, I don't know. It was supposed to come in summer I think.
I have great hopes for this motor!

For Audi, they have the 2.0l TDI that is now Common-rail instead of Pumpe-Düse, which makes it much more silent and refined. Seems to have some reliability issues though.

Mercedes plans to make its petrols direct-injected next year AFAIK. Don't know for Audi.

I would take the Mercedes, for sure. The Audi seems to be more involving to drive, bit less expensive. The Merc more comfortable. However, the Merc seems to be extremely reliable, and very well-finished. The Audi seems less bullet-proof in the reliability, and has a finition that seems not as solid, even if more appealing at first sight.