caveat emptor
It does not appear he is a dealer, so I do not know if the laws in his state require disclosure or not. No disclosure is required in my state by private sellers.
He made no representation in the auction regarding the condition of the engine. With your emails, you could always sue him, but I see no criminal recourse for you.
When buying a large ticket item, it is best to use Paypal or a credit card, as it gives you buyer protection. And when purchasing a car, it is best to pay the deposit, then either go inspect the car yourself, or before you bid hire someone to inspect it.
By paying with a money order and not inspecting the car prior to purchase you have really limited your options.
Have you had ANY contact from the seller since?
"Speed is fine, but accuracy is final" --Bill Jordan
Remember those who died, remember those who killed them.