So in his case - flush out the coolant system and change out the oil a couple times vs taking apart the engine and starting from scratch cleaning out all parts?
Glycol & Oil is a bad combination and in all my years as a mechanic I have never come across it (thank you lord) but in all the wisdom and stories I've heard from other 'retail' mechanics is that the engine would be junk and in just now a quick read is that even the littlest residual glycol left after a drain and wiping of the oil pan you will still have a chance of wiping the (all) bearings, even after several flushes. There is a method of flushing, several steps/times, think diesel trucks & heavy equipment but it's quite involved, google will lead you down that read. In your case I'd suggest a complete teardown and cleaning of the engine, inspect all bearing and replace for peace of mind. I think you still have a problem with the manifold, not RTV'ing the corners would give you a oil leak, you seem to have good gaskets and pressure sealing at the head water passages although the left rear by the distributor where the second intake manifold bolt hole is rusty would be a suspect area.
You got to check your manifold to cylinder head flatness, this can be simple with the engine out by removing all gasket material and laying the manifold down , insert the bolts (but don't torque them, finger tight) for proper alignment and just shining a strong light and eyeballing it. Also check the manifold for cracks, get a large magnifying glass and check around the water passages if the manifold lies flat.
Just a quick re-cap on this deal without me having to read through the whole thread again.
Original 318 engine teardown showed rusted stuck ring pistons: Correct?
You got a later model 318/360 'Magnum' engine: Correct?
You had some old timer rebuild this 'Magnum' engine: Correct?
You got like several options here: do several oil change flushes and hope for the best, if that works pass it along to someone else.
A complete teardown and cleaning and checking, reassembly, pressure check the engine before running and installing in car (all at your cost)
Button it back up and with all your documentation and witness's take it back to this engine builder and get your money back. Don't know how that will work if you payed out of your own pocket for this 'Magnum' (core) engine.
**** like this ends up in 'The Peoples Court'. Believe me I've come across several people that had 'Race Engines' built, 1 for a street Boss 302 & 2 other bonifide vintage race cars that right on the invoice since it was 'Race' built it said absolutely no guarantee, now these engines ran for awhile but seized or blew up and they were SOL.
.
