1996 Honda Civic RPM fluctuates during idle

Hi guys,

Here's my problem. I have a '96 honda civic that recently overheated. I had that fixed (replaced a leaky pipe). At the same time my engine revs from 1-2 rpm's and jumps back down. It keeps jumping up and down when I'm in Park or idle. The first mechanic said he couldn't find the problem, but I asked if it was a engine problem - blown head gasket and such, and he said no. There is no apparent white smoke from the exhaust, but seems to have a milky substance in the coolant, after being flushed. Also told me there is no water in the engine oil, so the the engine seems fine. He said it might have to do with the Idle Control Valve. He told me to go a Honda dealer. So I took it to a dealer, they did a block test and said that I need to replace the engine ( with a used engine). They said it was leaking and would eventually fail, on top of that they wanted me to replace a water pump, radiator, timing belt - all for $3,500. I'm stumped, I don't know who to believe. I'm afraid the dealer is taking advantage of me. Any help or advice would be greatly appreciated. Thanks.