Engine Light Problem

My engine light started coming on and going off right after the 24,000 miles warranty. It has been doing this for the last 24,000 miles and finally stayed on. I have called & taken the car to the dealer so many times I lost track. I was told numerous times to keep driving the car, they couldn't tell anything until the light stayed on. Finally at about 35,000 miles, the light stayed on & they hooked up to the computer. They tried several things over a period of serveral weeks and told me they can't find anything wrong with the car. I told them I have to have something done with the repair since the light is now staying solid all of the time. They were nice enough to give me a loaner car and finally called me (after 6 weeks) and told me it would cost me $5967 to rebuild the head of the engine. I can't imagine the whole engine would even cost that. After a letter to the general manager and the service manager, they are now coming back to me and telling me Mercedes has agreed to pay for the engine but I have to split the cost of parts and labor and my portion will be $1000. Something sounds a little fishy. Are they being honest with me or am I getting the standard "dealer ripoff" treatment?