The proper testing for engine condition, including the piston rings, valves, etc. is a leak-down test. That will tell you where the weaknesses are and whether you need a rebuild or just adjustments, a head job, etc. Your mechanic should know this. He should also be able to tell you exactly where the smoke is coming from and why. If not - go away. Also, production rebuilt and remanufactured long-block engines are still available with warranty. With known costs for the engine and prices for additional components, you should be able to get a good handle on the total cost you're facing. Unless the $2800 includes all the additional components, that figure is rather high. Unfortunately, if you can't or won't do the tests yourself, you are at the mercy of the Fox in the chicken coop.
Often, whole engines are replaced as they take less labor to do that way, and so the profit margin is higher. That's fine, if you can make sure that margin comes down. Cheaper for them should be cheaper for you, or go elsewhere. There should be very little labor for the other components, as they are removed and replaced as part of an engine job anyway. I'd say 6 hours would do it. Barter up to 8 if necessary at a reasonable low-skill shop hourly rate of $50-$85/hr. (it's not EFI diagnostics or electronic tranny troubleshooting here). Add your component costs and go from there.
David