Can gas in oil cause engine knock?

Recently I had my S-10 Blazer in the shop and I had them replace the wires, plugs, cap, rotor, fuel injector, fuel pump.

It cost over 1500 dollars.

When I dropped it off, it was running fine. Just doing this for preventative reasons.

When I picked it up, it was misfiring and knocking. I brought it to their attention and they re-gapped the plugs.

Took it home and within driving it for less than 200 miles, it developed a very prominent knock (ONLY ON ACCELERATION, NOT AT IDLE) and upon checking the oil I noticed it was suddenly overfull and smelled like gas. It was also greyish in color.

I took it back to the shop that repaired it and now they say it needs a total engine replacement! Claim its the crankshaft.

The car runs, drives, and does not smoke. It just knocks and not all the time.

Please help me. I fail to understand how 1500 dollars in preventative maintenance turned into a 3000 dollar engine.

I refused to replace it, my Blazer is now in my driveway collecting dust.

Please help.