I had the same problem, only in my case there was no oil in the engine (whole different story about how when I first got the car, I took it to Auto Masters for a full service. Long story short, they didnt screw back the bottom properly and the oil was leaking slowly.... fast forward 2 weeks... driving on the freeway and then clank, clak, clank, clak...) Anyway, I got a reconditioned engine, changed most of what was in the engine bay that needed replacing at that time too. Came up to just over $5k in total. It runs perfect now. But being a 22yo car, eventho the engine and most in the engine bay is all good, I'm still always replacing bits and pieces around the car. The latest being the gearbox and CV Joints. So I wouldn't recommend spending too much on your engine replacement unless you will be keeping it a long time. I'll say go option B, but make sure you get a proper engine replacement. Also remember a rebuilt will mean a long period without the car.