Sorry to hear this situation dr. It sounds like you have been patient, honest, and willing to compromise. Reguardless of the original buyer, the engine had 0 miles on it correct? IMO it should be stood behind the original builder. Apparently he is not too proud of his work or he would be looking to get this fixed. The poor communication and run around you've gotten I know is so frustrating. I'm sure the original builder is just using the fact that you are the second buyer downstream to wash his hands clean of liability. Sorry for your troubles, I really hope you get it worked out.
On I side note I think it's a classy thing you've done your best to keep shop names and owners out of your post for the time being. I bet you're glad you sniffed around that engine a little more huh? Better to know before it went in the truck. Had you ran that motor, you might have had 0 chance of any potential compensation.