Sorry, forgot about the rest of your query...
Point 1: Replacing the valve/rocker cover gasket doesn't require a pit or a hoist or anything other than hand tools... so unless he's talking about the head gasket I have no idea why he wouldn't be able to do it.
Point 2: Ask them how they diagnosed the bad head gasket... get it in writing or write it down and let me know. Ask if they did a compression test and if so what were the EXACT numbers, write them down and post them up. Ask if the coolant was contaminated with oil or if they did a pH test on the coolant and post the results back here. Did they replace the spark plugs and the valve/rocker cover gaskets?
Point 3: You don't need a performance shop to handle these issues.... just a competent mechanic, a Toyota specialist is definitely preferred.
The guys at the Toyota shop didn't necessarily lie.... you haven't got enough info to know what they went looked at or how they came to their prognosis. So, we can help you ask the questions you should be asking, but until we get the answers back, not one can tell you if they've made an error or are flat out lying.
You REALLY don't want to know what a new block would cost (if there was even one available). Even if you bought a fully rebuilt engine from a GOOD shop, the cost of having it installed would probably kill you. Prices vary from one market to the next so I can't say what it would cost there. I suppose I should ask though... what are you willing to spend? How much did the car cost you?
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