my 60 series delima

Your between a rock and hard place.I would go for a 2nd hand motor provided I knew with some certainty I was getting something decent .Ive noticed some of the companies that do the chev diesel conversions often sell the motors that come out of their customers cars.The chev diesel is another option although there are said to be reliability issues but not having any personal experience I cant be sure.
6-8k is a lot of money to spend on a l/c that will be nerly 20 yo soon ,but that depends on how much you love it.If you want to keep it for another 10 years,maybe its worth it.
Another option is there are increasing numbers of 2nd hand 1hz motors around with low klm in the 3-$4k tested with 6 months warrnty.That would require a g/box upgrade/modification also.Would give a little more power as well
Honing it out would be ok if the rest of the engine is in good condition.Sometimes getting a single piston can be imposible for some makes,but I dont know about l/c

Yes your best bet would be to replace the engine with a 1HZ and if you can streach the budget go for a Turbo version.

give Toyota a call they are having specials on brand new motors at the moment and when they tell you the price haggle and they will go down more. I heard of 2 people who bought motors 1 a 2H and 1 a 12HT the 2H was $5000 pump and all and the 12HT was $8000 turbo included but no pump. Can't hurt to call.

Maybe you should consider chevy V8 diesel conversion.
It will cost the same or less to do that and power increase would be significant.
60 Series has leaf suspension so weight of V8 diesel should be no issue.

Over the years I have rebuilt a lot of 2H engines useing non guniune engine overhaul kits. These kits come complete with new pistons and liners,all gaskets bearings seals etc. Not sure what a kit costs now but they were around $900 to $1000 back in the 90s. If you could find a good mechanic with the gear to do the job (you need a liner puller as they are dry liners) even with a head recon and new injector nozzles you should come in way under the price you have stated. As I said I have built a lot of 2Hs with these kits and never had a problem,chanches are if you bought a recon engine it will be fitted with these kits anyway. Consider the sale price of the vehicle when spending large amounts of money on it,will I get it back when I trade up or do I cut my losses now and trade as is, how long am I going to keep it etc. Hope this is some help.