If the car is in good shape and you like it it is worth fixing. If there are a bunch of other things wrong with it than no. But you need a new motor and what he is willing to do for that price is being very kind indeed. Keep in mind that you will need a few things that will add to the cost like oil, filters coolent and a few gaskets (exhaust manifold come to mind) for tranfering parts from your motor to the one from the yard. Also you should throw in a new thermastat and replace any hoses and belts that are showing their age. If at all possible see if he can go with you to the yard to listen to the motor you plan to buy. Go looking yourself first and only ask him to listen to what you think would be a good selection rather than ask him to run the roads with you, or if he uses a yard for his shop start there. The fact that heavy oil made it knock less means nothing more then you can drive it to someplace to fix it. The problem is still there and it only going to get worse untill it fails. Better to change it now and save your good parts, like heads and such as you can use them later or sell them somewhere to help offset the cost of the job. Plus this way you dont have to deal with getting stranded and paying towing bills and having to fight converter bolts and such off a locked up motor. Depending on what you need, 100-200 budget should cover your parts and fluids and filters. Also whenever I do a motor job I replace the rear main seal on the used motor and the front seal on the trans while it all apart anyway. Noting worse than saving 20 bucks and having to go back and pull the motor again to do it later after ya had it all out in the first place. Your call. And the last thing I can tell ya is to be sure to help him as much as he will let you even if he is charging you 300 AND buy him dinner or something after your done as thanks, think of how much you depend on transportation and what it would cost you at regular rate, he is doing you a huge favor.