My A35 needed a new rear differential when this message popped up. When it happens your car will become front wheel drive only. The way to confirm if its a software and not mechanical failure, is to select the driving diagram that shows power and braking of all four wheels. If your 4matic is working, you'll see yellow arrows underneath all wheels. If you only see the arrows under the front wheels, then your rear diff is most likely toast.
I'm sure I read on a US forum that Mercedes tell all their 35 owners to come in for a 1,000 mile running in rear diff oil change. Sadly, we have moved away from these running in services with our newer cars and there are many articles on the Web and on YouTube that demonstrate how effective it still is to keep your engine in peak condition. The rear diffs on these cars need an oil drain and fill every 3 years and with very specific oil, so it just goes to show that its quite a fragile piece of kit that needs regular maintenance.
