If the head gasket did not seal from the previous rebuild the anti freeze could travel across the holes in the gasket when under pressure. The real problem you may be dealing with is a crankshaft that is wandering back and forth. The previous owner fixed the worn parts but may not have fixed the cause of the problem. I believe the lower end knock is probably caused by the wrong size lower connecting rod bearing (another potential disaster). If the car body is in good shape I would search for a good salvage motor or see if there is still a factory rebuild available. From what you describe there is probably no hope for your old engine.