IMHO it's up to seller if he decides to be nice to the buyer and pay for some of the repairs. He not us is the only one who really new the state of the engine before selling it to you.
If he's a good guy which it sounds like and is telling the truth then if I were him I wouldn't pay because he sold a working engine and thinks you messed it up.
Now, on the other hand you think he sold you a bad engine and want him to repair it... you see no one wins. If he gives you 50% then he's agreeing to have sold you a bad engine.
It's a tricky situation but as a buyer I don't think you can demand something from a seller of a used part or even act like they owe you.
Last summer my father sold a Sea Doo the buyer tested it on the water for a while was happy and bought it the next day. All the while my father said it seemed to be running slower than normal but the buyer insisted it was fast enough for him and still wanted it. Well, a week later the buyer calls it wont run well anymore and my father chips down $250 or so (i forget but was well over 200) to help pay for a carb rebuild or whatever he was told it needed. Now, if it were me I would have said to bad you bought it that way I warned you I was going to fix but you wanted anyway. Some people may call me a bad seller for that ??? It really depends on the situation, and really only the buyer and seller know the full details. Oh, and guess what, a week later the guy had re-posted the sea-doo for sale anyway, it was now "to fast" for him and he sold it for more than my father sold it for.
(I'm not bashing reselling and making money here, but the fact that it was bad that he came back to my father to get $ to fix it then turned around and made a profit on it.)