As far as I know, the dropped valve seat issue in the early 5.7's is limited to the 05-06 years. That's why I am being proactive and doing both of mine ASAP. I hear where you're coming from on "stepping down" to a smaller vehicle, even though the fuel economy is better. My attitude on that is that when everyone drives small vehicles, then I will. I couldn't see driving around in a small vehicle and getting hit (potentially) by a Ford Expedition or Chevy Suburban. For sure I'd come out on the short end of that. The early WK's like ours have 5 Star ratings for both front and side collisions and, IMO, would hold up a lot better in such a collision. I also, don't care that much about fuel economy, as long as it's half way reasonable.....about 10 or more in town and above about 15 on the highway. To me, trying to improve the fuel economy on these "slugs" is sort of a game, plus I love to tinker. So far, on my 06 5.7, I've improved the highway fuel economy by about 25%....(16-18 mpg to 21-23 mpg), not bad for a ~400 hp., ~5300 lb. (wet) "barn door" cruising down the highway.
On yours, Doug,
RCS1300, in his Post No. 5, has some valid points regarding prices and possible repairs that may be in the future. IMO, one big downside to dumping it now is that you're pretty much upside down in that you still owe $$$ on it, and would take a pretty fair hit if you dump it. As I said earlier, if you like the vehicle and it is otherwise fairly sound, go ahead and spring for the repair. Normal fair wear and tear items will happen with any vehicle and to get something different now, you MAY incur initial costs getting it up to speed in the maintenance department. With either a repaired or new engine, at least you'll know exactly what you have.
FWIW, I think I'd first tear it down and see just how bad it is. You may be surprised!! If it didn't damage the cylinder wall or piston, the cost of repair would probably be less than $1000, plus labor. If the head hasn't been destroyed, that would be even better if it could be repaired. In any case, for sure do both heads for the reason you stated above....don't want it happening again. In your area, I would think there should be a good machine shop that specializes in either/both engine/head rebuilds. I'd also guarantee that, if they do heads, they're familiar with the early Hemi valve seat issue. Valve seats alone are not too expensive.....~$8-12 each and maybe up to ~$200 to R and R them.....maybe in California a bit more. So, say you're looking at $500-800 to have heads redone (if both are rebuildable) plus the labor to R and R the heads. Also, if the prices climbs by quite a bit (depending on what's wrong and what it costs to repair it), you'd want to factor in the existing mileage on the engine and perhaps go with the rebuilt/remanufactured engine. Something to think about for sure.
If you're going to take it to a local shop, find an independent that has a good reputation (ask around.....friends, family, neighbors, social media, etc.) and have them tear it down. Be sure to be there when it's completely torn down so you can see exactly what it looks like and what needs to be repaired. DO NOT let them sell you a bill of goods by saying other stuff needs to be done, unless it truly needs it. I think you said you had some previous wrenching/engine maintenance background, so this will be in your favor. Things you SHOULD have done though (repaired/replaced) would be anything that would require future "invasive" maintenance/tear down to repair in the future. For instance, on mine, I am replacing both heater hoses, the heater hose hard line o-rings that go under the intake manifold, and the MAP Sensor. On yours, if you still have the stock exhaust logs, replace all the exhaust log bolts/nuts/studs with better quality components, and inspect the logs for damage/cracks. Install better quality exhaust manifold gaskets (Percy's Seal for Life P/N 66075 if you're using stock logs....about $30), and consider using Nord-Lock Wedge washers (
http://www.nord-lock.com/bolted/watch-the-new-junker-test-video-here/) to insure they won't come loose. A "top end" gasket kit will run about $200 from RockAuto. New spark plugs and an oil change would also be in order. Also, while the heads are off, check/repair the potential problem "yellow wire" on the starter. Others may also think of other things that should be done while the heads are off.
Good luck and keep us posted on your direction and findings.