The cross hatch in the photos looks to be at the wrong angle. Also, it looks like the ridge is still present. My guestimation is the rings are broken and acting like little pumps pushing oil into the combustion chamber.
It looks like the block has to come out at this point. My suggestion is to search craigslist.com or car-part.com for a running 250 and swap it in if you are low on cash. Otherwise, a good rebuild will cost you a minimum of $1500, more with a dyno run.
The good thing with the 250 is it has the same bolt pattern as the rest of the late 6's and the V8's. They are also plentiful, been in everything from pickups to vans to cars to boats to generators.
Scott
