I thought I would add to this debate.
I have owned two Mercedes ML, the first a petrol ML320 and then a diesel ML270.
I changed to the RX300SE in the last couple few weeks.
To restate what many have said you have to decide what you are looking for.
In my opinion the Mercedes does have some clear advantages, the boot space is significantly bigger, it can have 7 seats, the interior is tougher, the external looks are more pronounced (tonka toy like). In these areas the Lexus has no strong image (this model not the brand), and the lack of space and 7 seats give far less flexibility.
Comparing the Lexus to the ML320 (ML350 now) I have to say performance is very similar. I think the box on the Merc may have been smoother but my Lexus is new so I reserve judgement. Clearly the diesel is an added option and bonus BUT in my opinion woefully underpowered and down right dangerous in overtaking manoevures (especially with the family on French holidays).
Personally I would not have replaced my ML270 with another the same, the engine is simply not upto it, so you then have to compare the ML350 and the Lexus.
The Lexus has some very strong advantages, better ride quality, less body role, much better comfort, far higher specification or lower price for same spec. Never go off road so not an issue.
Finances were also a concern - on my last ML the 270 I kept it for 28 months and sold privately for £6,800 less than I paid for it. The previous ML320 was £8,000 in 2 years for a petorl model. Both quite remarkable. I may have been forced to think about the ML270 again for this simple reason had it not been for the new ML due in 2005. This will (& is already) hitting ML residuals hard. In July, August and September the Glass/CAP valuation for a 2 year old ML270 has dropped by well over £2.200 in 3 months! Mercedes wouldn't even PX my ML because they had too many, they tried to find another dealer to take, couldn't, and offered £2k under trade book.
As for discounts off new - you can get 10% off the Merc and £2k contribution to finance at the moment. Having said that you should expect no less than £2,500 off a RX300SE or above.
I personally never like buying a car just as that model ends,the uncertainty as to future valuation is too big a risk.
I have no regrets the Lexus it is refined, comfortable and amazingly equipped and will suit me very well for 2 years. OK 23mpg isn't great but I'll cope 29mpg in a diesel wasn't that much better.
What happens then with the new ML and the RX400h - who knows that might be a different story.
John