Sounds like either a changeover valve or possibly the air-blend door not moving to the correct position. I have seen very few failures of the A/C system itself on these cars (SRT6 & SLK's back to 1998). I know mine gets stuck in heat only mode on occasion. Since I have my center console out, I will try to run down the cause (probably this weekend). I will update you if I find some better info. In the meantime, the following is the description from the service manual:
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In a blend-air system, a blend door controls the amount of unconditioned air (or cooled air from the evaporator) that is allowed to flow through and around, the heater core. A temperature control on the A/C heater control panel determines the discharge air temperature by energizing the blend door actuator, which operates the blend door. This allows an almost immediate control of the output air temperature of the system.

The mode control on the A/C heater control panel is used to direct the conditioned air to the selected system outlets. The mode control uses engine vacuum to control the mode doors, which are operated by vacuum actuators.