I'd have gone with a new engine, too. I would have also tried to replace the connecting rod on the old engine. As a matter of fact, that's what I actually did this year ('94 MTD; 12.5HP single cylinder engine). First time I ever opened an engine and took a look. I could not detect any damage to the cylinder with a fingernail; it looked great. I opened 'er up cleaned it out really good and replaced the connecting rod. I did note there was A LOT of scoring on the cam shaft where the connecting rod rode, but whatever. I mowed my 1-1/2 acre yard and was a couple minutes from finishing when there was a clunk, the engine died, and smoke came out from under the ring gear. I figured that one cracked the case, too, so I replaced the engine with a 16HP B&S Vanguard V-Twin. The seller couldn't get the shaft bolt out, but my impact gun could. Unfortunately, it still didn't come off the shaft. That only made it a little bit more 'interesting' to get everything hooked back up. I just had to figure out which set of mounting holes to use. Runs better than before and is quieter, too.
In the end, I think you saved yourself some money and will be happy with the outcome.