I have a grey market 1986 Mercedes 500 SEL. It has the hydraulic rear suspension, and it is shot. Both shocks are leaking, and my mechanic says it will cost $1,800 to fix. Is it possible to replace it with conventional shocks?

It is possible to replace them, but if you can find a hydraulic repair shop, they are rebuildable. New seals inside the "shock", since it is actually just a hydraulic ram.

The last time I saw a conversion kit to switch to non-hydropneumatic suspension, it was around $900 to do so. New springs, shocks, and some other bits.
Then you have to find a hydraulic pump block off plate, since you don't want the pump spinning dry, on the front of the engine, possibly failing and dumping bits into the timing chain area!

Another option would be to find a pair of struts off of a car in the wrecking yards. Not an exceptionally high wear item, from what I've been led to understand.