Could dented oil pan create motor grinding problem?

My 145,000+ mileage 1988 Chevy S-10. 4cyl pickup has a grinding noise whenever I drive it and can barely shift into gear to go up small hills, so I had a Transmission serviceman check it. He showed me the very dented oil pan and said it may be interfering with the oil getting to the motor and that I may be ruining it the more I drive. There is a little leak of transmission fluid that he says could be fixed, but if he removes the transmission to remove the oil pan to hammer it out, my expense will be $700+. Will an engine repair or replace solve the grinding problem and return my gear power? The truck had the gear problem in Feb 2012 so it was non-operational until December when I started driving it again and it's getting more grindy and slower.