[Bigshrimpin]

Fred - Pull the heads and look first before you jump into anything or better yet pull the head with the mechanic. You know what you are looking for . . . The bolts are cake to remove (15 minutes total) and even if you do the deal with the mechanic . . . he has to yank the heads off. Make your decision then. That motor parted out is worth around $1000, so what can you get for $4000.

If that 2001 Merc 2.5L 200 has o ring (flat looking heads) style heads . . . stay away. If not, it doesn't sounds like a bad deal to me, especially if he'll rig it and provide gauges, remove oil injection, and offer some sort of warranty/support. If he's rebuilding it . . . ask him exactly what he's doing to "rebuild" that motor.
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Hope this helps!