Hard misfire on piston number two "catastrophic engine failure"

Hi, my car lost power the other day and dealer said to tow it in, so I did. For $225.00. They told me I have a hard misfire on number two piston, and it would cost an additional $900.00 to fully diagnose as they need to completely tear down the engine (four hours). When I balked at the price (which does not go to cost of repair) the guy noted that it was a catastrophic engine failure, and if it was his, he would consider donating the car or selling as is on a mechanic's special.

My car is ten years old. And outside of warranty, but it has 65,000 original owner miles, and has been serviced at the Audi garage from day one. Curious if anyone has seen this before and what might be the issue? Obviously do not want to spend money to diagnose if cost of repair is worth more than the car!

Thanks,
Holly