Russ,

I recently bought an'87 300tdt with a blown engine and face the same questions as you do. I found an engine in a local yard with a 90 day warranty for $1600.00, which is considerably less than either a rebuilt engine or a dealer
supplied replacement. If your car is really clean and you want to keep it for a long time as a reliable driver, you might consider a factory rebuilt engine. Fletcher-Jones
in California seems to be pretty good about its pricing.
Luckily, my car runs great with the cheapo approach, but when day 91 comes, I'll be sweating it out!
Good luck.