Water flooded the entire engine

That is unfortunate. The only way you can save an engine when it has any amount of water in the engine is to drain the oil/water and change the filter with new oil and hope that there is not rust build up. Then run the engine for about 5 minutes and drain the oil again and change the filter again. Basically there will still be some oil in the oil galleys and cylinder heads that may not drain out so adding the new oil and filter will circulate this through and then when you drain it again it will get that out until the point you have just oil in the engine.

This is going to be costly but it is better then replacing the engine. You want to repeat this process until you change the oil and it has no water in it. You will be able to tell when you drain it into a clean drain pan as the oil and water will separate.

The most important thing is to not try to start the engine until you drain it and get the oil out of the pan. If you get water between the bearings and journals then it will go metal to metal and it will start knocking.

This is all assuming you do this before the metal components inside the engine rust. Once this happens you may not get it to break loose but this takes some time.

Let me know what questions you have.

Just to be clear, they replaced the engine to correct these issues or this is what they found at this point? I am just not clear as to where the water in the engine comes into this.

If this was repaired and now it has water in it then none of this matters. We need to have the engine drained and checked as listed above. However, if this was the repair they made to correct the water in the engine but it is still having issues then it sounds like it needs to go back.

Let me know about this information and we can go from there. Thanks