Toyota Repair: 2000 corolla valve noise when warmed up, engine bearings, piston rings

Question
I just repaired the front end of a corolla somebody gave me after they ran into the back of a trailer hitch. The repair was minor but I never paid much attention to the motor. they drove it to my house. I think it had to overheat before it got there but nobody knows.
Anyway, the motor is quiet at first but after running for a few minutes, the valves start making horrible tapping sounds. I know its the valves using the screwdriver to the ear trick. I pulled the valve cover and it looks horrible in there. There is hard sludge everywhere. Some I can chip off. I'm wondering how bad is it? I can pull the head but I want to make sure that is the right choice or if there is anything else I can check before that. I will check my valve clearance tomorrow. The motor's a 1.8L with 115k miles.
I here about valves tapping when its cold and quieting down after warming up. Mine is the opposite and it never goes away. The guy I got the car from said its always done that since he's had it. Car drives fine too.

Please help,
Chris  

Answer
It looks like this car had very little, if any, maintenance or oil changes if there is that much sludge build up in the engine, I really don't think that valve clearance is the problem, it may be a problem with pistons or piston rings or engine bearings, in any case it sounds like this engine needs major repairs. One other condition that may exist with an engine that has all of this sludge is that the oil pump pick up screen is clogged up causing a loss of oil pressure, this may explain the noise after warmup, not sure what is going on but it seems that this engine has major problems.