I've been a part-time mechanic for over ten years and I stay current with things, so I work on just about anything from '60s carburetors, to advanced fuel injection systems in late model BMWs, and up until about two months ago, I would have been all but 100% sure that your engine is toast and to walk away from it.
But two months ago, this identical situation happened to me. I bought a used pickup truck for my brother and did some work on it, and then I was on my way to delivering it to him 600 miles away. About an hour into the trip, the oil pressure light came on and the gauge dropped to 0, but I knew that the oil sender for the gauge was primitive and would essentially read 0 for any pressure below 30psi. It came back on and off a few times, and since the thing still ran fine and wasn't making any weird noise, I kept driving, thinking the oil pressure sender was just defective. A few hours later on the trip, I slowed down for some traffic and rolled down the window and heard the top end of the engine make some light ticking noise, so I thought "oh crap, there *is* a problem". I finally got to a small town and went to the first auto shop I could find and explained the situation and they agreed that either the sender is bad, or there really is an oil pressure problem and irreversible damage is already done, so I might as well take it to a junkyard.
Well, I spent a few hours at that shop consulting with the owner about it, and we both used our years of experience in the field to narrow down what the issue could be (after trying to replacement oil pressure senders and a mechanical oil pressure gauge). Neither of us had ever seen a situation where an oil pump could partially fail. It's always bad bearings or a full failure and there is no scenario that could result in us fixing this problem for less than the cost of an engine rebuild.
I was essentially stranded halfway between my place and my brother's place and I decided that there could be an off chance that the oil pump alone had started to fail, but since we still had *some* oil pressure, around 7-10psi, and the spec for that engine was that 7psi was the minimum required to not cause damage, that there was a slim chance that we could put in a new oil pump and be good to go. The shop owner disagreed with me and was not willing to take the oil pan off for exploratory surgery. I limped the truck over to a different shop that was more willing and instructed them to take the oil pan off, inspect the main and rod bearings and if no significant damage is found, to go ahead and replace the oil pump and put the thing back on the road. I rented a car and drove down the rest of the way to meet my brother.
That shop called me the next day and said the main and rod bearings looked great, couldn't find anything wrong. They said the oil pump looked fine too, so they weren't really sure what the problem was. I asked them to go ahead and put a new oil pump and pickup tube on and put the pan back on and we'll see what happens. Another day later and they had it all done. I drove back up with my brother, returned the rental car and started the truck up and was met with a happy oil pressure gauge, no ticking noise, absolutely nothing wrong. We drove back down to his place in the truck and the oil pressure gauge showed the full 60psi the entire way. My brother has been happy with the truck for the past two months and no residual issues at all.
It was the strangest thing ever and all my training, and the collective knowledge of every technician at both shops that I visited in that small town would have condemned that engine based on the symptoms. It turns out that an oil pump *can* fail enough to have these symptoms and not cause permanent damage!
So, the way I see it, you have a few options here:
1) sell the car on craigslist for less than half of what you paid for it and walk away.
2) pay a shop to remove the oil pan and inspect the main and rod bearings.
2a) If they look good, put in a new oil pump and you'll probably be good to go.
2b) If they are bad, pay the shop for their time and sell it on craigslist for less than half of what you paid for it
2c) If they are bad, go ahead and pay the shop to rebuild the engine, or to install a used engine from a wrecking yard that has some sort of warranty on it.
Once you hit option 2, you will have some money invested and it will be easy to keep throwing money at the problem, but make sure you determine you cut-off point before going down this path. In my case, the shop was going to charge me $400 to remove the oil pan just to take a look at things. I had enough money invested in the rest of the truck and knew how much finding a similar vehicle would cost, so I was actually willing to spend the time and money on replacing the engine if I had to. If it came to that, I'd have paid the $400, thanked them for their time and rented a u-haul truck and trailer to drag the thing back home, where I have a full shop and all the tools and resources to rebuild the engine for not too much more money. In the end that whole trip ended up costing me close to $1200 between the diagnostic time for the first shop, some brake calipers that spontaneously failed during a separate incident on that trip, the oil pump replacement and the rental car. Had I been closer to home, I could have fixed all issues for under $100. I had set aside an emergency fund for this trip though and knew my risks and had plenty of time to plan for all contingencies along the way and was just basically playing out my pre-planned runbook on this trip.
So in short: make a plan, figure out all the contingencies and just follow the path that you set yourself on. Yes it will cost money, but in the end, it might not cost as much as you think and it could still prove to be a good investment in the long term. If you end up spending a total of $8k on this vehicle, but it lasts you ten years without incident, you'll be miles ahead of buying a car for $8k that breaks down in 2 years with a similarly expensive problem. My brother's truck is worth about $2k, and after all is said and done, it cost him upwards of $6k (due to all the other work I did before bringing it to him), but it has new suspension, new head gaskets, new oil pump, new brakes and basically it's not going to need *anything* for a few years other than oil changes. And $6k for a reliable vehicle that suits his needs perfectly that won't need any maintenance for a long time is a much better position to be in than a car payment, or a car that nickel and dimes you to death slowly.