Agreed that you can find a good used M 54 engine for around a grand with about a 1 year warranty. Call some reputable salvage yards before you throw in the towel. The M 54 engine was used in lots of BMW models of that era so their plentyful.

A side question: Why did you have to spend $4k on repairs to diagnose a damaged engine? Why was the head resurfaced? If it was piston damage due to foreign matter, the shop should have been able to peek in a spark plug hole and see. At most, you should have been charged for a removal of cylinder head to determine he engine was toast; probably a $800-$1000 job at most.

-Ben