Yeah, the smell thing was weird. I smelled something scorched as soon as I lifed the driver's side head off. But looking at the heads and pistons, nothing looked obviously damaged. There was a little bit of wear along the bottom side of the cylinders, but nothing looked gouged or anything. In fact, I'd say the cylinders could use a simple honing and be good as new, but what do I know about motor internals.
Also, the pistons looked okay, and the valved seemed alright. The only thing noticeable was a gouge around a non-critical part of the right intake cam... probably from the previous owner attempting to put a wrench on it to take off the cam sprocket.
I think we'll have to split the block to inspect the bearings and journals. Since there's all sorts of copper looking debris in the oil pan, I've got to think we'll find some busted rod bearings (are they copper?). The other possibility may be that the motor ingested a penny.. that would explain the turbo damage and the bits in the oil.
What I'm hoping now is that the problem can be fixed w/o a new short block, and all I'll need are some new piston rings, a hone on the cylinders, and some bearings. Adding in the cost of gaskets, I'm probably out the door for $500. But knowing my luck, the ring lands are shot, and the crank is trashed, and I'll have to sleeve the block or toss it out.