It's smokin...Time to replace my 1.8 Miata engine?

Well, I've got some serious oil burning problems and I'm wanting to make sure I had done all I can short of replace the engine. Some background: I got this 96 MIata really cheap (see thread here) a few months back because the owner thought it had a blown headgasket from being overheated. It did smoke after I got it running. I found the water pump did need replacing and once I drained the 8 quarts of oil in it and put in the proper 4 the smoking went away. Compression was good on all 4 cylinders. I changed the timing belt/water pump and called it a day. It was running good, but I didn't drive it long as I had big plans. I installed my Megasquirt, turbo manifold, SR20DET T25 turbo, intercooler, etc. I had a small misfire at anything above 5psi, but otherwise all was good. Plugs looked clean, etc. Upgraded to Toyota Coil on Plugs and that fixed my misfire and about that time noticed some smoking from the tailpipe. It would smoke a bit on startup but I noticed at high rpm low load (no boost) I was getting a smoke screen out the tailpipe.

So I started troubleshooting and started with the turbo. It was used and not rebuilt so I figured it might be the seals. I disconnected the oil supply line and it still smoked. Then to make sure I didn't have oil backing up the drain line in to the turbo I disconnected the drain line and plugged the pan. I also disconnected the PCV (GTX version) and the crankcase vent so that oil couldn't get into the engine any way but the cylinders. Still smoked. I did a compression check and got 195 or so on all 4. Plugs show oil on cyl 2,3, and little bit on 4. I don't have a leakdown tester. One final note, when I warmed up the car for the compression test and removed the plugs, there was enough oil in cyl 2 that smoke was coming up from it.

SO, to me it looks like I have bad rings even though my compression check showed OK. I'm assuming the oil in the cylinders is sealing them up enough to test well. I used the compression tester to pump compressed air into the cylinders and I hear ar flowing out the oil cap, but I don't know if it's excessive. My question to you guys. Is there any reason to not just go ahead and replace the engine. I've got a line on a really cheap low mileage Escort GT engine I can throw in it. I had planned on doing that when I bought the car, but I thought I got lucky that it ran in the first place. What are your thoughts?

The only reason not to change it is because of the effort involved :) Check to see if it's a forged or cast crank though.

I'd pull the intake apart and see if there's any oil in there. You can get some clues that way - oil pre-turbo tells you it's the PCV, oil post-turbo means it's from the turbo for example. Stopping the source briefly won't necessarily stop the smoke if the IC tubes are full. The fact that the smoking restarted with the turbo makes me think it's related to that.

Oil on the plugs can be nothing worse than a bad valve cover gasket on a Miata.

how many miles are on the engine? valve stem seals? i've seen a 2 quarts between changes 215k mile motor go to zero oil consumption with a stem seal replacement.

Keith, I forgot to mention, I pulled the coupler that feeds into the intake manifold from the intercooler and it is bone dry. Inside the IM past the throttle body does look a bit oily, but I'm pretty sure that is from before when it had 8 quarts of oil as I remember it being even oilier then. Car/engine has 143,000 miles. Also, I let the engine completely warm up (running for 10 minutes or so with the PCV, crankcase breather, turbo oil lines, and intake disconnnected, revving it to 3-4000 trying to isolate the problem. And from when I did the water pump, it's got a new valve cover gasket and the spark plug wells are dry. The only place I can figure oil could get into the cylinder is from the rings or valve stem seals. I'm thinking rings as it doesn't really smoke at high vacuum which I read would most likely be the seals, but instead a bit at idle and alot at say 3-4000 rpm with no load. I really appreciate the input guys! I'm really just wanting to make sure I've exhausted all of my options. I'm thinking I should just go ahead and order up that cheap replacement engine. The previous owner took such crappy care of this thing it will be good to just start with a lower mileage engine.