The Sad tale of a 1995 BMW 318Ti "Club Sport ULTRA RARE AND CLEAN"

[95ClubSportti]

I am the recent new owner of the 1995 club sport mentioned in this thread (http://www.318ti.org/forum/showthrea...995+club+sport)

Complete Newb needs some advice!

So, I took this lovely car to a track day. It overheated. I took it to my local BMW shop (http://www.precisionmotorworks.net/ great website I know....). Initially it looked like a cracked radiator. They installed that, but the car ran hot. After some compression testing, they narrowed the issue down to cylinder 3. They said that the block is cracked there and I 'll need a new engine. They quoted me $1,800 for an M42 with 72k miles on it. Then quoted me around $2500 for labor. I found a cheaper M42 motor 115k miles on it with a 2 year warrantee for $800 with shipping to Seattle. I'm still looking at a hefty fee for labor. I'm not sure what to do here guys!? Again I'm a total newb and I realize that so spare the mean posts.

What should I do?
1) scrap this car (sad outcome but might be the most practical way to recoup some funds and requires no further investment)

2) Put an M42 in there and bring it back to life. I'd hope to do some fun road trips and maybe a track day or two. It could break again of course, but if it does not, the resale value for the car would be pretty good ( I assume?).

3) Swap to a stronger motor: The shop told me they would do this, but they would basically offer me a "Blank Check" for the labor. Meaning they won't give me any quote. I now a lot of guys swap s50 and s52 into this car. Does this kinda of swap typically require custom fabrication? Is it easy? How does this impact the resale value of the car in the future?

I'm pretty bummed out right, not sure what to do.