More likely that coolant mixed with the oil or it's just a tired old 7M with worn bearings. Not unusual since they youngest of these engines is ~30 years old and many of them have lived a hard life of sports-car redlines and use.
Possible failing wristpin? That would be VERY unusual for a 7M. Not impossible. But if you're hearing a light knock and it seems like it's toward the top end of the engine, if it's RPM dependent and gets worse as the engine heats up - I have bad news, it's almost certainly rod knock and not a wristpin.
Personally I would start by buying the tools you need to work on cars like this - cheap box end wrenches, sockets, ratchets, etc at Harbor Freight works just fine. Get full metric sets that include 8, 10, 12, 14, 17, and 19mm sizes. Gearwrench or similar ratcheting box ends are amazing and worth the money -get the same sizes. Harbor freight also has 'extended' box end wrenches that are longer than normal wrenches, get those in the same sizes plus 21 and 22. Get a screwdriver set as well.
Add an aluminum 3+ton floor jack, jackstands, some drip pans and misc funnels, along with a no-drip coolant funnel. All in all you can get this done for $500-700, and that'll be all the tools you need to do 80%+ of any work you'll need to do on a MK3. Don't forget gloves and safety glasses!
If you have all that already, awesome, but start researching on how to pull the engine and transmission. You'll need to rent, borrow, or buy an engine hoist for that. If you have the ability to store an engine hoist, I'd strongly consider spending the $300ish on one from Harbor Freight. Get a 2-ton model because it has a much longer arm that reaches into the MK3 bay at a 1/2ton position WAY better than 1 ton models. Get the load leveler as well.
Pulling the engine will be the most labor intensive (aka pricey) part of an engine rebuild so as long as you can pull the engine yourself and get it to a machine shop on your own, you'll be saving a ton of money even if you have them do the whole rebuild.
I noticed you called around and didn't find a lot of shops willing to do that - did you ask them about the whole job as in you bring them a car and they rebuild the engine? Or did you ask them about bringing them an engine and them rebuilding the bottom end and cyl head for you, and you pick up just those components as completed items?
Either way, your choice now is to sell the car as-is for a nut-kick price since the engine's toast, or pull the engine and properly diagnose the exact failure. If the failure is repairable and easily rebuilt - rebuild it! If not, you know it's time for a fresh engine or an engine swap from elsewhere.
I hope that helps.
The permeation rate is still on a geological time scale relative to the maintenance these cars need already. I've had silicone hoses in several cars, one since ~2008, and I've never had unexplained coolant loss or low coolant because of it. The explainable coolant loss in that car was from failing old rubber hoses.
So, yes, there's some material science properties to consider and it's worth bringing up. But the realities of these cars tend to render that difference insignificant, though.
