Sounds like you may have an intake manifold gasket failure that allowed coolant into several cylinders at once giving the starting troubles. When they fiinally got it to go, the coolant showed as white smoke in the exhaust.
If I read correctly, you say the starter was cracked. If the coolant filled one of the cylinders sufficiently to cause a hydrostatic lock, this can result in a broken starter case. Also, bent connecting rods.
Before you had it towed, you probably could have saved the engine by simply pulling the spark plugs and taking a look-see. Now, it is hard to say what these guys may have done.
Don't know about the chisel marks, but it doesn't sound too good. I would want to check to make sure you don't have any coolant in the oil or that the engine wasn't damaged by hydrostatic lock. If not, you can replace the manifold.gaskets yourself for a couple-three hundred bucks. Add another $150 if you have to do the heads. So a junkyard engine for $400-$500 starts to look good.
But you really need to read up on the intake manifold problems of these Series II engines on this site and make sure those are good in any replacement engine you install or it'll be deja-vu all over again.
(edit: beat me to it cat!)