Expensive Lesson Learned!

You'll find that most cases are not bored "exactly true" but are off a little bit from side to side, and sometimes not even parallel to the case split. A good machinist can quite often make up for this when boring the case for bigger cylinder spigots (instead of refrencing off the case half you go off the main bearing bore), and is part of the "blueprinting" process. How bad is it?

About 3mm up from true center and 5mm left from true center. My mechanic explained a sand seal would not fit due to the offset.

Any crank misalignment should have been corrected by decking the block to account for the crankshaft offset or tilt so each deck is the same distance from and parallel to the actual crank centerline. There is no need for the crankshaft to be aligned with the case split and it's unlikely it would be. So how did your mechanic determine the crank and decks are out of alignment without completely disassembling the engine?

Now if the case wasn't machined correctly to begin with and the crankshaft was tilted vs the deck then there could be issues with oval cylinder wear. But about the only other thing with the case itself I can think of that would cause a cylinder leak that wasn't there previously would be the head studs pulling out. And that can be fixed with thread inserts. Otherwise it's cracks or issues with the bearing saddles/thrust surfaces that usually send a case to the junkyard.

So it is just the sand seal area that's problematic? Your case does not look like it has been machined for a machine-in sand seal. Which means that part could be fixed without needing a new case. The engine could be disassembled and sent to a machine shop to have it done, or you can rent a sand seal cutter that can be used with the engine assembled http://vwparts.aircooled.net/G...se-cutter-rental.htm It centers itself on the crank so it ensures the seal bore is concentric with the crank. (I'd be nervous about metal shavings if you wasn't planning on disassembling the case afterwards to clean it though.)

You wouldn't know if something was wrong with the crank vs deck without disassembling the engine to measure it. Again, it's normal for the crank not to align with the case split as long as everything was machined relative to where the crank centerline actually is. And since you say the engine runs fine, things can't be off 3-5mm internally, it would seize up if it were. I suppose there could be tooth engagment issues with the cam gear if the crank and cam were out of line 3-5mm, but again, it would take a disassembly to even check.

I don't want to say that you don't need a new case, but you haven't shown enough evidence yet to say that you definitely do.

It doesn't need a sand seal and doesn't have one currently. The crank pulley threads also looked a bit worn, and was told there is some small rubbing on the pulley form the offset of the crank shaft. It was stressed that the crank shaft is off-center enough that—for reference, a sand seal wouldn't fit correctly because of the current offset. It was explained as a red-flag that the crank shaft should not be this far off from center, that it could be harming internals, and with an unknown used engine, advised to get a new case and transfer everything (internals) correctly. I was told when buying the engine from a forum member (no longer) that engine had been built but a professional mech, has 4,000 mile on it and properly broken in. 

#3 cylinder is leaking oil as well.

I bought a brand new case that had been machined incorrectly. I returned it for another. Stuff happens. I believe messing around with your existing case that is so far out of true will really cost you some money and aggravation. Time to cut your losses, bite the bullet and buy a new case. I'd also get rid of those spring loaded push rod tubes. But what do I know. Good Luck, Have Fun.

Troy, I don't think he wants the engine to go 'boom'  while he's driving it around.

Yeah. Tough love from uncle Joel. Joel's almost always right, even when I don't want him to be.

My first tendency is always to think about the 50 ways I might fix something like this without just replacing the big part first. Joel thinks it through, lines up what he really wants, and then squeezes the trigger. It's a bulls-eye 95% of the time.

I, on the other hand, flop and twitch my way into stuff that I think is really, really cool- but only after I amass a great big pile of "didn't work". I've got a heap o' "didn't work".

I wish you well, Scott. I had hoped this would go better.

Sorry to hear what happen to you. Same guy that burned me on the carbs. 

I feel like I arrived late for the party.  Is there some reason why the seller's identity is being kept secret?

His name is corry. Never sent the intake manifolds that were to be with the carbs. 

Now scott gets burned. 

Scott, 

i would suck it up and tear the motor down. Few more dollars now is a lot less than starting from scratch.  

Troy-

If he tears it down now, it's a new case. If he waits for it to blow, it's a new longblock. The difference in price is significant.