Look at what we found.

[The MaDDeSTMaN]

What I find the most suspicous is the following:

• Mechanic says there isn't a drop of water - we remove the air filter and find water underneath it and half filling the hose from the air filter to the intake system.
• Mechanic says he checked out the torque converter, yet it looks as if nobody has touched anything in that area for years, unless he has a miracle tool that removes bolts without touching the built-up grease and grime that has accumulated in that area over the years.

If he has nothing to hide, why didn't he say "Your intake swallowed a heap of water and now your engine is stuffed, you'll need a new engine" instead of "There's not a drop of water, I think it's a bearing in the bottom end, you'll need a new engine"???

That's what it boils down to, it does sound very dodgy, doesn't it? You trust a mechanic to be honest and he hasn't been, and he's been caught out trying to rip someone off by telling them they need a new engine without even attempting to find out what the real problem is.