Mechanic has done all testing.  Head needs to come off & go to Engine place for them to test & make sure no cracks or anything.  Hard to give me a price, but hopes to have it done for under $2k unless they find something really bad.  Before you say anything.  I trust my mechanic, he has always looked after me.  And looked after my baby since I've had her (except for me taking her to Toyota a couple times.  bad move.........). 
I just gotta keep reminding myself.  "I love my little blue 2, she is worth it.  I love my little blue 2, she is worth it".
She's not just a car to get me from A to B.  Driving has become a lifestyle....... not quite like most of you guys, but certainly different to any other car I've owned.
 
lol, just had a thought I should do what you guys do with "re-builds".  go around there each day & take pics.  hehehe
 
"I love my little blue 2, she is worth it.  I love my little blue 2, she is worth it".
 

Only 2k for a head rebuild i think she meant.

Shaz
Not a motor out job to do head gasket (as per knowledgeable MR2 ppl), so that's good.  Still a big job if that is the problem tho. 

Of course ANY job can be done with the engine in car. You just may find at times the time you spend dicking around making special tools etc to reach hard to get bolts. It can at times prove easier to remove the motor. Not as bad for NA motors often worse for turbo motors.

I once saw a bloke rebiuld an engine in the engine bay of an AW. He took piece by piece off until he had the engine block and crank bolted to the gearbox. Then did the inverse. He was at a mates driveway with no engine hoist. That engine is still running 8 years later

That's right, not rebuild motor.  Check head for cracks, etc, & do the thing that needs to be done.  hone?? or something like that I think he said.  He mentioned gaskets & kits & other bits that will go in as well.  Timing belt was done at 199000 in Oct 2012.  New clutch November last year.  The have in the past overquoted & I have been pleasantly surprised when I've gone to pay. 
Timing belt job for example, they told me $800 - $850.  They charged me $560. 

Shaz
That's right, not rebuild motor.  Check head for cracks, etc, & do the thing that needs to be done.  hone?? or something like that I think he said.  He mentioned gaskets & kits & other bits that will go in as well.  Timing belt was done at 199000 in Oct 2012.  New clutch November last year.  The have in the past overquoted & I have been pleasantly surprised when I've gone to pay. 
Timing belt job for example, they told me $800 - $850.  They charged me $560. 

Yeah maybe 2k is the worste case senario then, if they need to shave the head cus its warped or do valve work etc...
I thought you were getting a full rebuild done for 2k so the clutch if easy to change while its all out but this will just be pulling the head off and putting a new gasket on (plus all the other gaskets they will change as part of pulling it apart). I don't thik your cylinder head will have any issues, its not like you were driving it with the temps boiling. You have done a lot of km's however so they might end up changing valve springs or maybe even reseat them depending on what needs doing. Should be all good if its any more then 2k that will be a bit of a worry though.

track_mr2
Yeah maybe 2k is the worst case senario then, if they need to shave the head cus its warped or do valve work etc...

Yes that's probably the case.
I would expect the head would need to be crack tested, and the gasket surface dressed. 
Also new valve guides and seals, and valves re-seated.
A couple of years ago I had all of that done on a 3sge head and it cost over $600 for machine shop work alone.
 
Also, as well as head work the radiator and coolant system would have to be looked to find out why this happened.
 

Head is off.  He pointed out the 1 little chip in one cylinder.  & how the bottom end (is that the block??) had 1 cylinder that was shinier/cleaner that the rest because water had been getting in there.  Was good to see when they lowered the hoist that the boot was covered with good thick cloth cover & there were other bits in the engine bay covered as well.