Replace mondeo engine or car?

Here's the general picture.

2003 Mondeo 1.8 petrol (duratec) 97K miles. 5 door. Mostly, short distance urban driving.

Pre-NCT test show emissions are off the scale. Garage says engine is burning oil and there is a problem with the pistons.

Options are:

1. Replace engine (€1,500 and also factor in that other things might need to be replaced e.g. catalytic converter: €600);

2. Buy similar or smaller car e.g. Focus with Zetec engine.

Initially leaning towards option 1, might get another 2-3 years out of car; have two learner drivers about to start.

What advice would readers give?

Thanks in advance,

trmartin