You did good by helping him out, though I wouldn't fault you at all for any of this. Whenever I buy and sell used cars (of which I've done many) it's always Caveat Emptor - "Buyer beware". You didn't hide anything from him, you even told him it was driven lightly...
Seven years ago I bought a 1991 RX7 convertible (which is still my baby). When I bought it the guy even warned me that the 2nd sychromesh was a bit wonky. Two weeks later I parked the car in a parking lot and the transmission totally grenaded itself. It was so seized that the car couldn't roll. They needed two winches to drag the car up onto the flatbed to take it to the shop. A tranny rebuild and the tow cost me almost 3 grand. Was the tranny close to done when I got it? Did I kill it when I drove it like a race car (which it is... so, who wouldn't?)? Who knows... I called the guy and had a chat with him to find out more history about the car but never had any expectation that he owed me money.
The fact that the kid was telling you he was going to mod the thing tells me (and I can guarantee this) that he was rat-bagging the **** out of the engine in the few days he had it. If it had never been run over 4000 rpm, redlining it (especially with a known mechanical issue) is going to cause some problems. Even when I buy a used car I slowly condition it up to high RPM before just dropping the gas pedal simply because I don't know the car's history (especially with my rotary engine that can rev up to 10,000 rpm). Obviously the kid was new to cars and doesn't know much about their care.
You saved his butt and earned major karma points for the year. You dodged a bullet for repairs. So yeah, you both got lucky in that regard.
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