From what you describe, they are already upside-down in their purchase. Now the question becomes, is it more reasonable to repair this one or look for another. My thoughts are this...
If it needs engine work, roll it for what you can get out of it. The radiator sounds to be the biggest fault. The cap needs to be seated properly to properly cool. New ones are cheap. Though I am not sure about your radiator itself. It sounds like you may need a shop to do some work. The compression numbers sound a little low but the main thing is to look for 10% difference at the most between the cylinders. If its been sitting for awhile, it may change after its been run. I'm gonna take a guess and say the engine has been run cold for most of its life. I would get a bore light and take a look inside the plug holes. You are looking for scratches, scored cylinder walls and pits. Carb kits are about 30 bucks and that work can be done in their garage.
Either way, the money paid exceeds the value of what its actually worth in good condition. Now its about how much do they want to put into it if any.
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