2001 Ford Taurus Head Gasket problem

I took my daughter's 2001 Ford Taurus in for repairs when it broke down completely on a road trip. I was given an estimate of and approved repairs totaling $600 that included bypassing a/c system with pullies, replacing several belts, flushing system, etc. As soon as I paid for it & drove it off lot, I could tell it was not running right. It had following NEW symptoms: mis & backfires, blew black smoke out of exhaust, had very loud engine, the engine light rose quickly up to H and the power steering did not work. I immediately called the shop's manager reporting the problem and subsequently took it back so they could tell me what was wrong and hopefully finish repairs. In a few days they reported that the car either needed a new engine (or rebuilt) but it could possibly be fixed by just replacing the 2 head gaskets. I was furious b/c I had already spent a fair amount of money and b/c noone told me that these new problems were discovered. I expected them to fix it for free, however, they are only offering to take $300.00 of the new repairs estimated at $1,600.00. The shop further claims that noone could have found the head gaskets were bad until the first repairs were done. I was further angered at the fact that the mechanic had to have known this car was far from road-ready when he test drove it or even just drove it from garage to parking lot. They admitted a lack of communication, but refused to take total responsibility. I believe the staff conspired to deceive me until they got that first $600 from me b/c they thought if they reported to me it needed even MORE work, they would never get that money & I would not approve these new repairs.

So with all the above being said, my question is: #1 Do you think that I have been a victim of a conspiracy? #2 Is it smart or stupid to put any more money into this car? #3 What is the correct amount to replace the head gaskets on this car? And #4 What are my chances in small claims court to get that $600 back?