Although both marques suffered (or still suffering) from reliability and child diseases, I think BMW would be the winner of that category.

BMW's handling is better.

Performance-wise, the 3.5 Liter V6 in the Merc has more power (268hp vs 255hp) and more torque (258 lb-ft vs 220 lb-ft).

I'll avoid posting some accelaration figures off some car magazines, but from those figures one could say that they are almost a match.

 

I can't speak of acceleration performance, as I haven't driven the C350. I have driven a C320 sport, however, 2003 model.

If the C350's chassis dynamics are anything like those of the earlier editions of the w203, which I'm fairly certain that they are, then the BMW's chassis dynamics are vastly superior, hands down. The Benz holds the road fairly well (relative to most cars), but still wallows considerably at the limit and during quick changes of direction. It does not feel nearly as confident or planted as the 3er, and seems to suffer more from inertia during slalom-type runs. There's also a considerable amount of understeer in the Benz, but that's fairly typical of cars in this class (including my E46, though BMW engineers seem to have cut the understeer down a bit in the E90, which has a surprisingly neutral disposition).

The Merc's V6 is a gem in the SLK350 (though BMW's engine is still noticibly smoother and less reluctant to rev), but I haven't experienced it in the C-class yet. I'd say neither car has an advantage in that department.

 

Well, the C350 is listed at almost $7,000 more here in Canada.

 

Own a 320sport, just drove 330

handling wise, no comparision (C350 sport is identical to my C320, save the engine improvements). BMW is hands down a better performer. Merc just feels way to heavy to toss around. The Merc does have a better highway ride, marginally so.
Can't speak to the new 350 engine, but my guess would be better low end push than the 330, less refinement. After having owned several BMW in-line 6s, Mercs engines are rather crass comparatively.

As to reliability, neither will give you Lexus reliability, but problems rarely leave you stranded. Any 1st year model is going to have its share of problems, and the new E90 will likely be no exception here (I have no experience here since I don't own one, so just an educated guess). However, the electrical and "fit and finish" issues with Mercedes C-Classes are deplorable. I would never buy another W203 Mercedes. While quality has improved year by year, they are still no where near where they need to be. I've had more issues with my car in a year and a half than any new car I've ever owned (and that includes some Ford and GM products back in the 1980s).
While that is just one person's experience, go check out Mercedes forums and you will see the same sentiments echoed by many a frustrated owner.
Additional food for thought is that MB suspended its free maintenance for the warrantly period last year.
Lastly, having dealt with 5 different BMW dealers in many cities across the U.S., MB service is noticably better overall (obviously experience varies dealer by dealer). MB does bend over backward in the customer service area, whereas BMW never seemed to me to make the extra effort in this regard.