DEAD cylinder: Valve + rocker arm craziness

[blankenship]

so, i added a '77 280e to the stable this weekend, and should probably lay down the story and give some background info before posing my question(s):

got her cheap because the non-mechanically-inclined owner said the motor was blown in 2004 because he'd run it out of oil, and she's been sitting since.
to quote him: "I was driving down the street and suddenly the car went poof and stopped suddenly. I had it towed to the mechanic who said it had run out of oil and blew the engine."

BUT

After I towed her home, I checked the oil, and there was some in there. It appeared normal consistency, with no water or milkiness. I added two quarts, which totally topped her up, and she took 1 quart of coolant. I turned the key and she turned over.

Her fuel gauge red empty, so I added 4 gallons of fresh gas, and she kinda / sorta started, and kinda / sorta ran a few times for 10-30 seconds, until abrubtly stopping each time. No noticable water in the oil or oil in the coolant afterwords. I got REALLY excited.

Anywho:
I did a compression test on her today, and got a ZERO reading (multiple times) on cylinder #1, thought #2-6 were all between 100-110 (cold).

I pulled the valve cover, and noticed that the #1 valve intake clearance big enough to stack a couple pennies in. that cylinder's exhaust valve was too big, too, but not nearly as bad. The other valves are slightly out of adjustment, but nothing major. I can see no broken springs or scarred cam lobes, but after removing the spring clamp from the adjusting screw on the #1 cylinder, the rocker arm basically just came off in my hand, revealing a little slotted metal fitting where the "Pressure Pad" is notated on the diagram below. It seems the adjusting screw won't get even get close to adjusting the clearance correctly, as there's just way too much play in there.

Wondering now, what's going on? Does any of this indicate the motor is truly "blown," and there's something wrong with the #1 cylinder/valve, or could it be something simple?