Dumn question but is there any chance you put the headgasket on backwards? Blocking the oil port?
To rule this out, take the relief valve out of the head, and crank engine a little. See if oil comes out.
If not, you blocked the port somehow.
A leaking O-ring would still allow some oil, so if there is NONE, the port is blocked.
If it mixed bad enough, then there is most likely bearing damage. Otherwise, if you think its ok , flush it out , then use #642 Subaru head gaskets .
Myself , I would search out a replacement motor.
From your description of the problem I won't throw money at the original engine. Subaru offers a factory rebuilt short block or source a low-mileage used engine. Replacing the engine itself is not rocket science and the kid down the street can probably do it for a few hundreds.
My ex is from Pico Rivera. Good chance you probably dated her as I learn over time the girl really got around.
Thats a sexxy cammy ya got there, How long have ya had the xt for? Never seen one in person but boy I sure heard about them!
I was raised with Dodge and Nissan's, especially pathfinders. Those riggs can sure take a beating!
Here's my 1987 Dodge d150 with 318 on propane, she's all original numbers matching with only 89.000 km! She came from the local military base, I bought her at the auction.