I read the replies and something else comes to mind. The harmonic balancer may be bad. That's the crank pulley to you and me. It's got some rubber seperating the pulley part from the inner part and it's bonded together. As the car ages, the bonding breaks down and the pulley can rotate independently. The timing can be way off as far as the marks are concerned but still run, on an engine which has not been messed with. Try this, take out plug number one and stick a long piece of wooden dod down the hole. Rotate the engine to top dead center and see if the cam marks are aligned. You may have to rotate it again to get the correct alignemt. The lobes should be pointing up.

Pretty funny reason to change an engine. I had to laugh what you said it developed a miss and a knock. That reminds me of a story I heard on TLC. A Spitfire pilot returned from a dog-fight. He told the crew to check the engine as it was running 'roughly'. They checked it and several of the cylinder heads had been shot off.
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Warren Bain - '86 744Ti M46 >282Kmi, '96 965 >97Kmi Wifemobile near Manassas Va