Agreed .... if the engine were so overfull of oil that it was beeing sloshed arround behind the pistons, then the engine would be noticably down on power. The parasitic loss of the crank dragging though that much oil and the pistons scraping though it would be incredible. The thing probably wouldn't rev over a few thousand RPMs.
They drove it or ran it without oil in it. It happens to the best of us. Happend to my shop a few times. Sometimes you just get busy and things go wrong. Over the 30 years we've been in business we've bought a couple engines for people. Really sucks when a $25 oil change costs you an engine and a day or two to swap it. But that's the cost of business. Doesn't mean it's a bad shop, after all, they made up for it and bought a new engine for you, and not even a used engine, a brand new one, that cost them a pretty dime I'm sure. Like I said, it happens to the best of us.