Gen 2, 340K, P0304 misfire and engine knock; Dealer wants to put in a new motor?

Hey Everyone,

I've got a Gen2 2005 Prius, with about 340K miles (odometer has the 299,999 problem :-/)

Driving down the interstate, the Check Engine light started flashing, so I went to pull over. As I slowed, a really large engine knock started. Since, I've only started it to get it onto tow trucks, and it was like a lawnmower: loud and shaky.

While Getting it onto the tow truck, it threw a P0304 misfire in cylinder 4 code.

Had the car towed to the dealer, (other mechanics were booked for weeks), and in pretty short order their response was "It has a knock, we recommend replacing the motor".

I've seen posts here talking about EGR cleaning, and replacing plug/coils as fixes for knocks and misfire codes. Is it possible/likely that my dealer is crap, and not checking any of those options? Or is it obvious when a knock is bad enough that the engine is toast? They didn't mention anything other than "has a knock"; so I don't know if they checked cylinder compression or anything else. It is possibly the dealer checked those things, but is communicating that poorly.

I was hoping lil' sparky would keep going another year for the market to cool down. I'm pretty mechanically inclined, but have never done any serious engine work (I can replace hybrid battery cells in my sleep at this point though ;-P) Thanks for your input!

 

Thanks! Oil levels were on the low side when it happened; but after it sat I'm guessing oil went back into the pan, and it was nearly full. I've followed regular maintenance and oil changes-- It does burn oil a bit, but no more than typical for a car of its age.

I'll move this to the Gen2 forum-- sorry for posting in the wrong side!