Worst case if it is a head is a simple head replacement ,, maybe $1500 if you have a mechanic do it or $400 as a DIY using the best parts.
http://cgi.ebay.com/ebaymotors/00-01-02-03-04-05-06-07-08-TOYOTA-COROLLA-CYLINDER-HEAD_W0QQcmdZViewItemQQhashZitem2ea9dac81aQQitemZ200418183194QQptZMotorsQ5fCarQ5fTruckQ5fPartsQ5fAccessories
Gasket sets and head bolts are equally cheap ..
This is a $250 weekend project ,, not a catastrophe.
Thanks for the advice. But I think that sinking so much money into a car with a BB value of around $1000 and 178,000 miles just doesn't make sense. As I mentioned, it also needs a new clutch and new tires, so that will add about another $500-$800 to the bill. Plus there's the pain and difficulty getting in and out of the car.
Mark