It sounds like you need to consider finding another machine shop. Details like you're describing should have been discovered early on, not well into the job like it appears is happening. How much taper is there in the supposedly marginal cylinders? If it's .005" or less, a re-ring job won't be a problem. Honing a little taper out and putting a slight knurl on the piston skirts to re-establish the proper clearance is a procedure that was done routinely for decades. It looks like they're searching for reasons not to continue, which just might affect the quality of the finished product. The only reason I can think of for line boring would be if a main bearing had spun, or failed in some way that scores the block. A scored crankshaft can be turned to the next standard undersize, or replaced. The dimensions of a 261 crank are the same as a 235, and the cranks are interchangeable, but the 261 has a forged, not cast crank. That's not an issue unless you intend to use the 261 as it was designed- - - - -long periods of full throttle operation at or near its top speed, pulling heavy loads in low-geared big trucks. Very few of us hobbyists will ever use our engines that way.
Where are the rust pits located, the ones that began the discussion about sleeving? If they're not in the top 2" of the cylinder, shallow pits don't necessarily make a re-ring job impossible. At worst, pits lower in the cylinder might result in a little oil consumption, but they won't promote blow-by or cause a power loss. If you're building an engine that will be in a daily driver, of will be called on to pull heavy loads routinely, do a top-quality rebuild. If you're building a weekend cruiser or a trailer queen that gets hauled back and forth to car shows, just make sure the engine will run reliably- - - - -you'll be changing oil on a time schedule long before it runs enough to use a quart caused by cylinder pits.
Jerry
