rebuild time?

I Took My 1976 Merc 500 To Dealer For Link And Synch To See If They Could Get Better Performance Out Of It. I Had Been Having Some Trouble Starting And Thought This Would Help, They Found Water Getting Into Bottom Cylinder So I Told Them To Go Further. They Pulled Power Head And Removed Exhaust Cover. He Found Some Holes In Cover Allowing Water And Exhaust To Mix. He Inspected Piston Thru Window With Cover Removed And Said 2 Pistons Are Scored And The Rings Are Stuck On These Pistons (although The Top Rings Are Ok. He Did A Compression Test Before All Of This And Test Came Back Fine. He Said My Options Are To Replace Cover And Reinstall Powerhead With Pistons As Is (ticking Timebomb Maybe??) Or Rebuild Power Head To The Tune Of 2500.00!!! I Am Going To Pick Up My Motor In Pieces And Need Advice On What To Do Next. Anyone Been Thru This?? Thanks