Since all is well otherwise I would do this:
dive into it and do an ole fashioned lap job
While you have the head off measure the protrusion of the pistons above the block deck and get the proper thickness of the head gasket. Don't replace it with the 3 notch just because that is what came off of it. You could be giving up power and mileage if you do that.
I would not spend one thin dime on an 11 mm engine...period.
I find it very hard to believe that you could not find a rebuildable 12 mm engine down in the long Salt Lake valley.....very hard. Run an ad in Craiglist. The Salt Lake valley is NOT that far away....I know as I lived in Rock Springs years ago. A little extra effort is worth having something serviceable.
11 mm engines are fine....until they are not. This isn't 1984 anymore.
I also wouldn't spend money on an 11mm engine.
Try Brax Euro Parts in Divide, MT. I've gotten engines from them a few times although I haven't dealt with them in a few years so I am not sure what they currently have to offer. Great people, though. Not far from northwest, Wyoming. Get a TD engine and make it actually fun to drive. You might end up over your $1000 budget, but the bang/buck ratio will be MUCH better.
The 11mm blocks are garbage...... please do yourself a favor and find a 12mm idi engine or slap a tdi in there
I've built alot of good 11mm blocks.
Never had a headbolts crack the block or rip the threads out of the block.
Even with stock headbolts.
Had a 1.5 block that overboosted to 35 a couple times when I was figuring out the VNT manual controller.
On that one I used head studs. and I always use headstuds on an 11mm block.
I've only heard of one person who had problems with an 11mm block while using head studs.
So not surprised Andrew speaks out against them.
I used new ARP head studs on an 11mm block and it failed. I did every step meticulously. It was a lot of work and expense and not something I would ever want to repeat.
Some of those engines hold up or there wouldn't be so many around still. Just slap that thing together and drive it like it's 1980.
Don't forget to re-torque.