Oil warning light engine sounds rough?

1990 Toyota Camry mileage: 150,000. 1. The oil warning light is on. 2. There are four quarts of oil in the car. 3. The oil filter is dry. 4. The engine sounds rough. 5. There is noise coming from the oil pump area. 6. A friend and I removed the oil pan and looked inside the engine and there is nothing broken or loose. 7. It does not seem that oil is circulating around the oil pump. It looks dry. 8. My amature mechanic friend suspects the oil pump is bad. 9. I took it to the Toyota dealer and they suggested that they replace the engine for $2,500.00 without looking inside the engine. What is the problem? Should I take back to the dealer and ask them to replace the oil pump? Why couldn't they determine this problem without replacing the engine?