You're right. An engine with no compression wouldn't have run. Also, I would think that "no compression" would be observable by pulling the starter cord.
If you want to confront him while you're still in a position to do anything, it's easy enough to jam a compression meter into one of the spark plug holes and pull the cord. If there's compression, just shoot him. Then take your engine.
Tell me....because I'm curious...did he give you a copy of any kind of work order for the work to be done. Anything to indicate that he even has the engine. A very well regarded boatyard here on Michigan's west coast wanted me to leave my engine with them and balked at giving me any paper on it. I walked away with the engine.
If you're not mechanical and can't do the compression check, just have him do it. A compression meter's about the size of a dial type tire gage. You cram it's cone shaped rubber end into one of the spark plug holes and yank on the starter cord. The needle on the gauges stops on it's scale and indicates how much compression there is.
The two likely causes of no compression would be really bad valves and/or really bad piston rings. If rings, you would have been burning a lot of oil.
Either valves or rings would be an expensive repair. The kind that would cause you to give him the engine.
Maybe you could get him to confirm that's it has "no compression". Ask him if he's sure that it has no compression. By the way, a compression tester costs less than 20 bucks and there's nothing iffy about the results. Either there's good compression or there's not. What was his reading? What is it SUPPOSED to be? I'll guess that as soon as you try to nail him down on the compression is that he'll change his story, which is why I would have him confirm it on the phone. Also, there's no way it has NO compression. Ask him if he used a compression tester on it, and what was the reading. His story's probably going to fall apart.
I'd get the engine from him and take it someplace reliable. Where I live, the "yard" would be the last place to take an outboard. Better to go where the fishermen go. Pay the yard if you have to.
The yard will likely get away with robbing you.
Chances are, if the engine was running well before, the popping's just bad fuel or something.