Yeah looks like you might be in for a used engine. But, with these robust om617's you can really get away with running them on low compression for quite a while. If however the head gasket is blown, that may explain your loss of compression. And if that is the case, you would obviously be better off replacing the gasket than installing a used engine. Your mechanic can check for a head gasket leak and you can go from there, I'm actually surprised he hasn't suggested that yet.