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I would take it one step at a time, the original post does mention "BLOWING A LITTLE OIL OUT THE EXHAUST". In this case I would not assume that there is catastrophic failure with the piston or rings yet. Especially the nature of this engine being a well designed Japanese diesel engine. However I...

I know its been a couple of months that you created this post but I ran into your thread and wanted to give you a cheaper option that would work. Instead of putting in a new diesel engine, change out the head gasket. It is actually not that hard and this youtuber explains it step by step: (His...