According to the mercedes website the cars have radar and lidar sensors. FSD has radar only, but apparently decided to move away from them and towards optical only, I'm not sure if they currently have any role in FSD.

That's important because FSD relies on optical sensors only to tell not only where an object is, but that it exists. Based on videos I've seen of FSD, I suspect that if it hasn't ingested the data to recognize, say, a plastic bucket, it won't know that it's not just part of the road (or at best can recognize that the road looks a little weird). If there's a radar or lidar sensor though, those directly measure distance and can have 3-D data about the world without the ability to recognize objects. Which means they can say "hey, there's something there I don't recognize, time to hit the brakes and alert the driver about what to do next".

Of course this still leaves a number of problems, like understanding at a higher level what happened after an accident for example. My guess is there will still be problems.

You've inadvertently pointed out how Tesla deliberately skirts the law. Teslas are way more capable than what level 2 describes, but they choose to stay as level 2 so they wouldn't have to take responsibility for their public testing