grober,
Let's not forget that the new A-Class is primarily designed to attract new customers to the brand, not existing ones. So the downsizing trend is unlikely to impact M-B too much. If people are rejecting C-Classes in favour of more compact cars, it is better that they buy a Mercedes than someone else's hatchback, no?
One thing a lot of new customers will like is the fact that a Mercedes is a car you buy and then drive until it falls apart, which will usually be more than decade after other brands have given up the ghost. While depreciation will be excellent, you're right, service costs are an issue and this is Mercedes's achilles heel. It can't afford to overcharge for simple servicing and repairs, especially if it wants to retain the new customers it acquires.
Gavin Green at Car Magazine says he's a little bit disappointed by the new A-Class. He thinks it is too evocative of Korean and japanese brands and has too little new tech. I disagree. The safety features are great, the iPod / iPhone connectivity is cool and it looks as if the larger 2.0 litre engines (not shared with Renault) will be the ones to go for - powerful and frugal.
I suspect that the Audi A3 may beat the new A-Class on design, features and driving dynamics - but if my experience owning a 1st gen. A-Class versus an Audi A2 is anything to go by, the new A-Class will probably be better built, more reliable and more comfortable - a better ownership prospect.
The really important thing with the new A-Class was to produce something with inoffensive styling. It may not appeal to everyone, but it could never be called hideous in a way that Bentley's SUV concept is.