Toyota Repair: New engine?, 2 quarts, head gasket

Question
I have a 91 toy pickup 4 cyl. 22re ex.cab 4x4 w/ 175000 mi. Manual trans. The head gasket is the problem i think. water in oil. it overheated too. She's been leaking and/or burning about a quart of oil every 400 miles. I noticed a dramatic drop in gas mileage:315 miles/tank to 180 miles/tank and then the engine started reving rythmically while in neutral, from 1500 to 2800 rpm and back. The gas mileage drop was in two tanks worth, and then the revving, and then she overheated. I put straight water in radiator and 2 quarts 20w50 in and drove home about 2 miles. Haven't started it since. a friend has another 22re and i'd like to put it in. I'd like to know of there may be issues with 4x4 capability, and any other red flags you could offer. Also my A/C doesn't work but I have heat; I'd like to fix it while I'm in there,any tips? I have very limited knowledge but my friend has rebuilt a 100 22re's. Any advice you have about other things to do while I'm in there to ensure longevity would be greatly appreciated. I appreciate your time and expertise. Thank you very much! -John

Answer
before you condem the headgasket check the timing cover. When the timing chain gets real loose it hits and breaks the guide, then it cuts a hole thru to the coolant passage. Wala!  water in oil.
The idle flucuation is air in the system. the engine cant find the right idle because its getting a bad engine temp signal beacuse its steam, not coolant at the sender.

If you swap engines you may need to swap a few sensors, thats about it.
Its a strong engine.
Then address the A/c issue.

Mike