Crap this is a long thread. I read the 1st 12 pages and my eyes are hurting.
I was also going to buy a motor from Dynoflo and now I'm glad I didnt. I bought a Reher Morrison 522 instead. I'm glad I stepped up and spent the extra cash instead of trying to save a buck. I was looking at thier 582 for much less money than my 522. I also have a riend that I crew cheif on that was going to buy from them as well and now will not.
I am a business owner myself in the custom home market. I warranty all my instalations and materials for 1 year which is standard. I'll fix anything that fails free of charge and most of the time even fix problems that arent mine for free as well. After the year is up I still make free repairs that I know will not affect my pocket book very much, just so the builders stay happy and I keep getting new referrals. My builders love me and I'm proud of that fact. When it comes down to it, I'd rather spend a few dollars than to lose a lot a money from future work that I didnt get. I do 3 million a year in business so a repair that cost me a few hundred or even a thousand isnt a big deal to me. I just do it and move on. I've had repairs that werent my fault that cost me 3k plus but the builder was happy and I since made several hundred thousand from the same builder which I would have lost if the repair wasnt done. Sometimes you just have to bite the bullet and do the right thing.
The right thing here is replace the shortblock completely. INCLUDING anything else that may have been damaged as a result of the failure. I understand the date of sale issue from Dynoflo. BUT. You have the pictures of the engine and it's VERY apparent that this motor doesnt have any runs on it.
I had an engine builder that I used in the past just for our machine work on our parts and we assembled them. We never blew a motor up in nearly 20 years. This is in my stock car days running late model asphalt cars. Anyway this builder-machinest did not reinstall the oil gally plug that is in the block that cant really be seen very well. We built the motor and went to the track. Spun a bearing pretty quick. Oil pressure was good but the oil was being bypassed back to the filter and not getting into the motor where it needed to be. He did not help with the rebuild and said we should have checked this ourselves. HE was paid to do a job and failed at that. We never used him again. He is now out of business.
Another builder installed new springs and a set of heads that had a broken spring already. I made 1 pass and broke another spring. He replaced all the springs again and did not charge me a dime for anything. Whether the mistake was his or the spring manufacture, he took care of me. He'll always get my business and does do work on all our motors that we dont take back to the builder for freshens or major work. All because of his customer service.
So Scott. Bite that bullet and do the right thing. Pictures are worth thousands of words. I'm sure the damage done here to your future sales might hurt a little "very little", but you can make it hurt a bit less by making your customers happy and taking responsibility for the mistake. I guess about 100k in sales have been lost due to this thread alone. Over 30k in my teams sales alone.
Mistakes do happen all the time. No one is perfect. We dont expect them to be. We just want honesty and for someone to be trustworthy.