this thread is funny. Not taking the mickey or nothing, but it is funny to read.
Basically, if i were you, i wouldnt bother trying to repair it yourself... you'll only do more damage. If you are concerned that buying a tow rope costs money, then you aint off to a good start anyways lol
If ya mate built his car up from scratch/standard, then let him work his magic hands on it and you watch what he does. Get him to run over a few basics with you too, i.e a full service etc. Get the basics sorted before trying out detailed things like head gaskets and alike. If you are serious about this car, i would also suggest getting a copy of the Haynes manual. eBay that for cheap enough.
One thing about ya mate tho, he does seem to have diagnosed the problem without checking it out first. Just cos ya car blew oil over the road doesnt mean the sump has 'rusted'.... the issue could be anything!
Good luck with it tho mate... and if ya can get the 30 notes together, i'd go for the XR lump and 5 speed box, its a bargain that cant be snubbed!!!