That's funny, Brad and I were looking at that boat. It had not been winterized, and the freeze plugs had popped out. So, we lowballed them, feeling that it was pretty certain that the engine was toast. Water in the oil means that they put the freeze plugs in since we talked and the engine is in fact, toast. A new engine is 16K from Toyota, last time I checked.
If I could get that thing REALLY cheap, I'd put a different engine in it, maybe a 4.7 out of a tundra or something. Or a crate Hemi;) If I had the time and a place to work on it, I really don't.
You could get an engine from a wrecked Lexus and probably swap the marine specific parts from it. Rebuilt car 1UZFE's go for around 5k. I don't know what the issues might be, if there is anything significantly different from the marine and car versions of that engine. I don't think there is...much.
Capt. Rick, this could be a weekend project that you could turn a few bucks on. I don't think anyone is going to touch this one with a ten foot pole. Who knows what else is wrong with it, it is an abused repo. But, there is an ass for every seat!