Welcome to Bimmerwerkz.
First, ill touch on the idea of an engine swap. Any engine you get know will have quite high milage, similair to yours, or if it has really low milage then it will be considerably more expensive. I would leave the engine you have until it absolutley needs to be replaced.
If you think the head is blown then get a pressure test done. That will confirm if it is or not. If it is then your gonna have to tear it down. Depending on how much money you want to invest this will be the time for replacing things. Replace as many hoses as you can as they deteriorate over time. VANOS seals are good to do while you have the head off.
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Last edited by Lord Vader; 03-23-2013 at 06:58 PM.