Shaft play the thcknness of a quarter sounds normal to me (he did check). Compression sounds normal if this is a 1g motor. Oil in the piping is also normal if the valve cover breather is still connected or was in the past.
To be honest, I think I would be looking into the valve seals. They can cause substantial oil consumption contray to popular belief (up to a quart per gas tank in my experience), will often emit the smoke under vacuum/deceleration, and will absolutely bollix the piston tops and spark plugs with crusty oil. For a long time I was swapping blocks and turbos trying to get rid of it, assuming it could NEVER be the freshly rebuilt heads... Turns out the head rebuilder was not checking or replacing the valve guides, and the seals would fail almost immediately. I now use Edgar Machine, he checks all of that and almost always ends up replace at least the exhaust side guids. Never had another problem with valve seals again. Go figure...
Also I should mention that we can't really doa "wet" compression test on our motors. With dished pistons the oil just puddles in the dish. So the compression will always come out higher since the dish is now smaller, and oil never reaches the rings.
