Really sorry to hear how it turned out mate. Sounds like you were dealt a dud hand by the seller.
For what its worth - I'd cut my losses and try and get what back what you can of your $2k by selling it for whatever you can get (parts will fetch more, but will take longer) rather than spending another $7k on a replacement motor).
But as someone now onto his second 156, I'd encourage you to use whatever you get back and put it toward another (better) 156. They are brilliant cars.
If you look long enough, you should be able to find a decent one with proper history for under $5k.
Like Darryl suggests I'd try to find a V6 manual - they are the most robust, make the best sound and have the most poke.
But if you choose a 2L, I'd steer clear of the selespeeds, and get one that doesn't need the timing belt replaced for at least another 12-18 months. That will hopefully give you some breathing space to enjoy it before you need to write another big cheque (the belt has to be replaced every 3 years or 60,000km - religiously - and its a +$1500 job)
All the best and I hope this doesn't put you off Alfa ownership for good.
