If it is a blown gasket, it most likely exploded in a giant cloud of smoke. Cracked heads tend to be more of a coolant-in-the-oil problem. If the head is cracked bad enough to produce a lot of smoke, then it will be visible from the outside. just look carefully. Removing the head is really the best way to know, but if you have to replace the engine anyway, it probly isn't a big deal.
If the engine is out, and depending on miles, I would get a new chain, tensioner, and guides if they are worn. Also, make sure the engine and tranny mounts are still good, and, if you have some extra $$, lightweight flywheels are nice.

Water pumps and thermostats can also be problematic on high-mile cars.
I'm sure there are people here with more/better information, where are you?

Good luck with the shopping; 318is's are great cars.