I concur about the headgasket now probably being blown from your
overheating the poorly installed motor. That is probably causing the white
smoke.  Easy to check by having your spark plugs out and inspecting down the
holes to see if there is coolant in the cylinders.
  I, too, have a 1.8 inline in my 84 and I overheated mine, after I totally
muffed bleeding my radiatior when changing the coolant.  That caused the
headgasket to fail.  With mine, I put some compressed air into the cooling
tank reservoir and I could actually hear the coolant leaking into two of the
cylinders.
  Don't freak out.  Changing the headgasket on an inline four is quick and
simple, unlike a WBX (from my reading).  I did my own gasket in about 3 hrs,
motor in, with simple hand tools..so a *capable* shop should be able to do
the same, barring complications.
  It sounds like your mechanics suck.  What you describe, it seems like
sloppy and uninformed work has turned a simple swap into a painful and
costly ordeal for you.  Get the van to another mechanic that is competent.
Bad luck choosing the wrong wrench...
  Don Hanson