Apparantly they cost more when they were new, and C240's are rarer, so why are they so cheap? Are there any known problems with these cars that I should know before buying them? Any info on Mercedes 4Matic would be helpful too.

Supply in demand. The C240 is really the worst deal Mercedes offered in the C clas range. It was awfully slow, it handled poorly, wasn't sporty like the C230, and cost more. It was rare because MB couldn't sell them.

The likely reason is the lack of popularity of the model for the reasons mentioned above.

The C240, in all honesty (and I have a C320 and currently drive an E55), is somewhat of a poseur car. It really is for those that don't care about the car itself, but want that 3 pointed star on the hood and nice ride quality (which the C240 does have).

The C230 on the other hand does have an appeal to young professionals who like its sporty looks and handling. It is still pretty slow, but more fun to drive than the C240. Its popularity increased with a big Mercedes marketing campaign in the past few years, unlike the C240 which was never marketed.

The popularity of the C230 in the new car market carries over to the used market as well. In the used car market the C240's price reflects what the car actually offers, which is much less than a C230 overall. Call it a market correction.

As to reliability, W203 C-class cars (the most recent body style but not the new one) have had a lot of reliability issues. Overall reliability is very poor, particularly fit and finish and electronics.
Merchanically, the cars are very sound and their engines are bulletproof, however. If you buy one make sure to get a pre-purchase inspection and have the dealer pull the service history. A warranty is crucial as well.

As to the 4-matic, I have never driven one, but it would be nice if you live in bad weather. It will make the car even slower, however, and have a slight negative effect on fuel consumption.