BenHosed?

As a surprise to my son and his wife while they were out of the country I had their 1996 Outback w/ 210,000 miles towed to a local dealer. The suspected problem was a blown head gasket. Due to the age of the car, mileage and value of the car I didn't want to put more into the car than it was worth and told the dealer I would authorize the repairs only if the engine was in otherwise good condition. Once the engine was taken apart the blown head gasket was confirmed. I was told that the cylinders looked good and that the engine appeared to be strong. Based on that diagnosis I authorized the head gasket to be replaced. I also authorized new breaks and emission repairs for a total cost of $3,000 (more than the car is worth, probably). The car is now burning 1 quart of oil every 100 - 150 miles I returned it to the dealer to determine why. The diagnosis was bad rings. Could the mechanic have determined the rings were bad when the engine was apart for the head gasket? Should the mechanic have determined if the rings were bad before saying the engine appeared to be strong? Although I would not have proceeded with the head gasket repairs had I known the rings were bad I am now stuck with a decision of whether or not to have the rings replaced. The dealer has agreed to take the engine apart and put it back together at no cost to me but I will need to pay for having the heads pressure tested and the rings replaced. Sounded like a fair deal until they quoted me $1,200. Is their quote reasonable? Any advise on what I should do?