I have a 2002 ML 320 looking to put wheels on it in the spring. First question, is it going to be okay to do a stagger set-up? Thinking 20 x 8.5 front... 20x 9.5 rear. Second question, has anyone lowered their ML and what springs to use?

stagger may not be an issue but ONLY IF you run the same sized tires. Since this negates the coolness of wider wheels in the rear, basically the answer is no. I guess you could investigate overall tire diameter for different sizes but its still not a good idea on a 4wd vehicle.
haven't seen one lowered, would just need to buy rear springs and adjust the front torsion bars.

on a 4matic/4wd vehicle, all of your tires/ wheel assy's need to be the exact same diameter. that system has alot of components that all have to work with eachother. if any of your tires have a different diameter than the rest, you will more than likely have bas/esp problems. your wheel speed sensors will be sending different readings and you will have unfavorable braking at times (from esp), sometimes even when driving in a straight line. as far as your staggered wheel/tire question goes, it would be pointless on that car. you could do it if the wheel offsets were matched so that the track on the front was the same as the rear, but you'd be much better off just getting the same size wheels and tires all the way around.