Do I understand that the water jacket repair was successful?
Does it run now? If it doesn't, there is a possibility of endless problems yet undiscovered and even $500 may not be a bargain. 3 tires differing from original may be a red flag of incompetent patches and repairs. Plus overheating to that extent may be a clue to severe abuse. These models are usually extremely troublefree.
You might get lucky and discover that water in the oil is nothing more than a head gasket. I think it is worth trying a head gasket first ($50) before doing a major overhaul or a replacement engine.
If there is any question of water where it doesn't belong, be sure to spin it using the compression release -every- time before starting it. With the high compression of a diesel, water in a cylinder will bend a rod or shatter a piston.
If you can tenatively line up an engine from Bruce before committing to buy this, repairing it might make sense. He is honest and will do right by you.
On the other hand if buying an unknown engine ... I still feel terrible about bringing an ebay auction to the attention of someone who needed an engine. The donor engine was from a tractor that had been on a trailer when the whole rig crashed. 'Light rollover', he said. He had a crashed tractor, but I suspect it was enoute to the scrap dealer. First he jerked around the buyer for a month before shipping the engine, then the buyer found severe crash damage and extreme wear so he was no better off than the engine he intended to replace. I've quit recommending ebay auctions to people.

Caveat emptor.
I assume you read all the way through
Domush's overhaul thread. His previous two overhaul threads are relevant too. Mandatory, before buying a fixup tractor.