Sorry, this is long.

Background:
A few weeks ago my wife was driving to work (city driving) and without warning the engine revved itself to 6000 rpm and then belched out black smoke from the tailpipe. After turning off the engine and waiting a bit she tried to restart it but had no joy. The tow truck came and the guy got the engine going by letting it turn over for a very long time. It didn't sound right and white smoke came out the back so he turned it off and the car got towed.

Mechanic:
Our mechanic said a cylinder and piston were shot and that he needs to have an engine specialist look it over to see if it can be fixed. The next report states that the engine is toast, not worth fixing and they found a replacement Ford engine, which we then bought. While waiting for the replacement engine to be delivered he next says that all the old injectors are shot and that new ones cost $$$. Used ones cost $, but currently there are none to be had, so we'll have to wait. (We live in Estonia and the parts market is not very big.) Anyway, so now we're counting up the cost for the replacement engine, 4 injectors, labour and then he reports that the turbo shaft is broken too. (it seems the more he inspects the broken engine the more he finds wrong)

The classic question:
Is this legit? The car was working fine, no warning lights and then...disaster. We bought the car just over a year ago for 6800 euros and it has high mileage (over 200K km), but all my old Volvo engines had high mileage and "just worked". The mechanic claims this happens all the time with these motors, especially since we're not doing any high-rev highway driving to clean out the diesel particulate filter.

The options:
Fix the car for about 2500 euros with a mish-mash of parts, lots of labour, no guarantees. After that maybe it's worth 5000? Unknown.
Sell the car to the mechanic for 2500 euros.

The suspicion:
He's piling on the problems to paint the picture that, best-case, this car is worth 2500 euros to us (5000 resale - 2500 repair), but to him it's worth more since he can do the labour himself.

My questions:
Again, does his story sound legit?
What's the resale guesstimate of a 2007 V50 with a replaced engine?

Thanks,
Märt