When I tore down the 235 I had bought, I found two of the lifters that had loose tops. Engine hadn't been making any unusual noise, either. Sounds like your noise was the piston coming apart.
Appears the rebuilder is working with you, and being honest with you. I learned about the surcharge on machine work when you don't buy the parts, in Wichita it ran 25% and all of the shops I talked to followed the same policy, some wouldn't even do the work without selling the parts, period.
As far as the cost, I spent about $800 for the rebuild on my 235. The shop did the machine work and rebuilt the head. I did all the other assembly work and bought the parts elsewhere. I put in a M4F cam, about $150, iirc. I didn't have to buy pistons or rings, was able to acquire a very lightly used set for free. Sounds like your guy isn't trying to shaft you on the price.
