I think you will find that the Mk2 has two heat shields over the exhaust which sometimes become loose and cause a rattle. One is between the exhaust and the fuel tank, the other over the catalytic converter. Simple to check if you can get under the car easily and safely, though engine stopping and low oil level as you describe possibly points to something more engine related.

Although the oil pressure guage is mainly for show, did you notice if the needle dropped due to lack of pressure?

Can't help with the pricing I'm afraid.

I would think with the described symptoms that the engine has had it ,it depends how much the car is worth to you and if you have the money I would shop around before you give the go ahead if you go down the line of replacing the engine.If you have it done then it will not increase its value much over other cars but it should last you a few more years and don't forget a new clutch at the same time.