Red Rock: It's not that I don't believe the mechanic. The reality is without taking things apart, there may be other issues. I just wanted to get a sense from guys who know jeeps inside and out. The mechanic actually told me to sell the jeep and take the loss. A previous mechanic said it was a shift plate, but he just listened to it from 10 feet away. Reality for me is that kicking out two grand for a rebuilt is not an option. I'm currently unemployed, while I have money to live on, that kind of money for a toy just isn't an option. I bought the jeep for $3,500, which I thought was a good deal considering the solid condition of the body. Realistically, I believe my choices are find the problem and fix it, or replace the engine myself with a used one. I know a used engine is not going to raise the value of the jeep. But this is something I hope to fix and hang on to for a good while.
40dog: Since the knock started I've probably driven it less than 50 miles (30 at highway speeds trying to get home), and it's idled maybe another 15 minutes while trying to diagnose at different places. The engine has over 160k on it. I compression has been solid. I haven't had it checked since the knocking started. Oil pressure gauge says it's solid. Right where it usually is.
From the wisdom of the collective. It sounds like running it further will just create more damage if it is indeed a rod, or possibly one of the other issues. If I can find a used motor from a trusted source that is likely my option. My car restorer friend is going to a car show in South Carolina and is going to call in some favors to see if some of the jeep guys there can do anything for me.
This is a great community. Thanks for all the help. If anyone else has ideas on how I can diagnose or fix the problem. I'm open to hear more.
In a love/hate relationship. I love it, but I know it hates me since it takes all my money.