Usually when it's burning oil the smoke is blueish/white. Water is usually white. And running rich is black.
How did he come to the conclusion that the motor was going? Have your mechanic friend leak down or compression test the engine. This way you'll know for sure if the engine is going or not. If it runs with no lower end knock and the piston rings are still good, I'd be tempted to fix it. Even if it needed new heads, compared to other cars, this Ranger isn't bad at all.
Have your mechanic friend check the fuel pressure. Should be 40psi. You could easily have a ruptured fuel pressure regulator. If it's ruptured, you will find fuel in the vacuum line to the upper intake plenum. It's on top of the fuel rail, drivers side, it's round with fuel lines going to it. The vacuum line is on the other side, near the fire wall. It could still be bad if you don't find any fuel, it's a good idea to check the fuel pressure regardless.
Is the check engine light on? There's quite a few sensors that contribute to the air fuel mixture. I cannot tell you exactly what is wrong, it would be like shooting at ducks blind folded. But scanning the codes checks over the electrical circuits for faults and voltages that are out of range. This will only give you hint of what's wrong, you'll need to figure out why there's a fault in the circuit. The sensor itself could be still good.
Also check the wiring to the o2 sensor.
Scan the codes.
http://www.troublecodes.net/Ford/
Pete