I'd pursue through the small claims court and/or police - while it is hassle if the guy gets a record it might stop him from shafting other people and getting away with it; which will continue to happen if every-one has the "don't want the hassle" mentality.
Pending the guy's budget, another 2nd hand engine with the mani's swapped over while re-fitting would probably be the cheapest option - if the current engine bottom end can't be salvaged.
That might return the largest amount "net" back to him once he stripped and sold off the parts and bought a replacement vehicle. Especially if not another MG....
I doubt he'd get all that good a price for the car "as is" when it isn't a runner 
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Mods Fitted
Pipercross Filter; Full 2.5" 'Wingy' exhaust; Donny Custom Turbo outlet pipe; Custom injectors;
Uprated gearbox bearings; Helix Clutch; Quaife ATB; Upgraded clutch Hydraulics; FMIC; Ported Head; ARP headstuds; Leda coilovers; 'Brembodge' 326mm disks/DS2500 pads
Dieselpowered
Fitting Custom Hybrid Turbo (1856GTBv) & controller; Remap, swirlpot, lift pump
AMW Motorsports
Custom exhaust manifold & downpipe
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