How much does the car repair shop deserve to get paid?

Garage owner estimated $2200 to replace a blown head gasket and machine the head. I was reluctant to spend that much on old car, but he was very confident there would not be further damage, even though the car stopped when the pistons seized up from overheating. Unfortunately, once he sent the head to the machine shop, they said it was damaged beyond machining, so a used head is needed and estimate is now $2900. Car might be worth a little more than that ...except now he is no longer so sure pistons and cylinders are ok, given how bad the head is. Time to give up and take the car home and sell it very cheap to someone who wants a project, however owner now wants $550 for mechanic's time so far in taking off the head. He says that is a deal, half price for ten hours labor, and therefore his mechanic won't get paid at all for five hours of work and he will lose $350 for the parts he already bought. Really? 10 hours to take off the head? He can't return the parts he bought? The mechanic "only gets paid for what he produces" and is getting stiffed as it is? Should I give him the $550...or maybe just tell him to keep the car?