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Month ago i have seen oil everywhere on my air filter. I have pull out the overflow pipe and it smokes pretty much. This monday I'm going to mechanic and he will see what is causing problem. Is This problem may cause dameged head gasket ?
What i'm scared about is that mean that cylinder is dameged, or only rings? What usually fails on m10 motors, cylinder and rings or only rings?
I have big problem if cylinders are damged that means big repair, and i am very nervous about this.

Engine sounds very worn. Sounds like needs a rebuild or replacement might be easier/cheaper?

Yes I want to rebuild , but I don't want to put new pistons(+0,25) that I am scared about. I just want put new , seals, gaskets, bearins.. and rings but I'm not sure is that will be possible if cylinders are damaged?
Replacment? Which motor I can put except M10? M10 are very rare here.