There is enough history on these forums to suggest your engine MIGHT NOT be hydrolocked. It's worth taking a few minutes to check into it yourself before paying so much money.

Also, the mechanic might not be wanting to fool with it, and just saying, "Yeah, it's shot, give me $1,850"

I would think you could find an engine for $400-600. Paying $1,200 to replace it seems really steep. If you end up getting it replaced, bring him down to $1,200 since that's more reasonable.