Greyjaei

Car info:
92 Honda Civic DX
340k(engine rebuilt at 300k)

About a week ago my engine troubles started.
Was driving home when the engine temperature shot up, checked the
coolant and there was none there.
Refilled it, took it to a mechanic friend, he said the Thermostat
wasn't working, which was resulting in the coolant being boiled off.
Seemed reasonable, changed that, coolant hasn't been dissappearing much
or at all since then. (timing belt is going, can't drive it around much
to check)
WAS going to get the belt changed, but the mechanic at the place I took
it to was pretty convinced I had a blown head gasket or cracked head.
All he did was take off the valve cover, didn't do any compression
tests etc.

There seems to be no coolant in the oil pan, and no oil in the coolant.
But the inside of the valve cover is covered in this brown sludge.

I'm not sure what to do.
Is it definitally a blown head gasket/cracked head?
Could that brown sludge have formed inside the valve cover any other
way?

Not really willing to dish out the 1500 to repair the head gasket right
now, or the 3000 to repair the head. Want to be sure of where I go from
here and would appreciate any opinons. The car is a really nice ride
and I'll be sorry to see it go.

Here are a couple pictures of the valve cover and lifters etc
http://i36.photobucket.com/albums/e15/Greyjaei/2.jpg
http://i36.photobucket.com/albums/e15/Greyjaei/1.jpg