I would be careful to not overpay for work that may or may not be necessary. If the engine worked in a seatrial - it may very well be repairable.
My boat has the same engine of approximately same vintage (few years younger) and I do get some soot deposits on the transom when running and also some smoke, especially when starting cold. That said, it got me through almost 600 miles of ICW without a hitch.
Diesel engines are almost always repairable and replacement is almost always significantly more expensive (though of course new engine would be great for the boat).
That said, you probably won't achieve much. For about 10-15K of expense that engine swap would cost, you are not likely to find a lawyer that would take a case, even if there is one. And, of course, since there is a lot of uncertainty and deniability - you are not likely to get anything. Of course, I'd be very pissed in similar circumstances (and I've been in situations where such misrepresenttion occured).