How to determine if motor is toast?

[1987BroncoII]

Just picked up an '87 Bronco II for $300 (2.9 motor). Problem appears to be broken head gasket (water in motor oil...no oil in radiator). Before I waste my time doing a head-gasket job, how do I determine if the rest of the motor is OK? Motor starts, runs, but loses power after warming up (and eventually dies). No serious knocking sounds. I have to remove the heads anyway, but not sure what to look for to determine the status of the short-block/crank/rods, etc.

I'd like to do a 4.0 swap, but if I could get a few more miles out of this motor while I gather my 4.0 parts, that would be great.

Thanks in advance for your answers.

[Welding fool]

These are real bad about cracking heads, so if you're gonna pull it down be sure to have the heads checked for cracks while they are off.

[RakerBill60]

When you pull the rest of the motor down, pull a couple of rod, and main caps, and look at the bearings. There should be normal wear on the bearings. Look to see if there is copper showing on the surface, if there is, then it has more wear than usual. With norman wear there should still be a white or grey surface on the bearings depending on the manufacturer. If you have any doubts, take them to a local shop, and they can tell you about the wear patterns.
Also check at the top of the cylinders to see if there is a ring around the top of each one. Feel with your finger to see if you feel a ridge. Be careful to not cut your fingers.
Hope this helps ya.