Beginning with head gasket

Oil and coolant major leak. No engine light, bad smell, smoke. Mechanic says head gaskets need to be replaced. Sent to machine shop, replaced head gaskets and more, came back after three weeks with engine light on. Told to drive it to "clear out". Smell worse and began to smoke. Bad pistons, I was told. Back to completely rebuild engine. Eight weeks later (seven at machine shop, apparently) it comes back. No engine light, drives okay, leaks less, but still very bad smell and white/gray smoke especially when starting. Drove for two weeks as instructed. Seems to be getting worse, not better.
Took to former mechanic of mine (before I moved) who says he can see head gaskets replaced, but no evidence this has seen a machine shop. Says he could have put in a brand new engine for $2,000.00 in two to three hours, whereas I spent $1,600.00 for first go round.
Back to drawing board so as not to lose investment thus far (I have spent over $4,000.00 on this car in one year). Now current mechanic insists he had rebuilt from top to bottom, but he is unsure as to why repair did notwork and wants to put another used engine in car. I have no clue what to do. I do not believe this mechanic is deliberately delaying or cheating me, but what should I expect after a rebuilt engine? Does car normally need x number of miles to "clear out" residue? I have never missed an oil change, but this car has only been mine for three years.
And is it normal for a machine shop to keep engine for weeks?