In order to optimize the packaging of the system to allow it to be easily installed in many vehicles, Mercedes is placing the battery pack under-hood by the engine. Limited under-hood space means a nickel metal hydride battery was out of the question. The lithium pack is being supplied by Johnson Controls-Saft which is also one of the development suppliers to the Saturn Vue PHEV program at GM. Since GM has indicated that they have no interest in pursuing lithium metal oxide chemistries (those are the kind used in laptops that have nasty thermal problems), it's likely the JCS unit for Mercedes doesn't use this type either. The first of the Mercedes S400 hybrids is due to launch in 2009 at about the same time as the PHEV Saturn Vue. It remains to be seen which one makes it to market first.
[Source: Automotive News - Sub. req'd]