A few years back, OK - more than a few, when the Coast Guard sent me to MK (Machinery Technician) school - we came to about week 14 and spent the next two weeks in the teardown shop. One half of the class went to the GM shop, the other half Cummins. So you did a complete teardown and rebuild on either a GM 6V53 or the Cummins VT903's.
Point being that those engines had some very young wrench turners stripping them to the very last part, and then building them pack up to the point of a full power test They ran for years, with bearings, rings and other assorted parts replaced each week and other "on conditional inspection" (as we called it) parts replaced as needed.
So I would agree that full disclosure is important, and then as George mentioned the inspector can utilize whatever method he needs to ensure airworthiness.
Sounds like it might be quite a find...
By the way, Training Center Yorktown is still up and running, but just to show you how much has changed - they don't have two weeks of welding and machine shop, no training on boilers etc. We are starting to become a group of warranty exercisers, parts changers and overall less diagnosticly inclined techs... And the Chiefs I learned from are all starting to retire. hey thats me in another 6
Stay dry... raining like crazy on the lower Cape
Kyle