Yeah 5500 is high for a car with high miles and a blown engine. Unless the car is 99% rust free, has new parts (wheel bearings, clutch, brakes, tires) I wouldn't pay that much. You will spend well over $1k to refresh that engine even if you DIY as you SHOULD send the block to a machine shop for align boring/honing and cleaning, why risk metal shavings from a spun bearing working their way through the oil galleys back in and ruining the engine again?
If you don't plan on doing a heavy build (over 350whp) you could drop in a new engine from Subaru and get a warranty on it (only if it doesn't have mods). Otherwise I would suggest you start building an engine for it from fresh parts (or with the block machined/cleaned), forged pistons, rods, ACL bearings, new case studs/gaskets (OEM gasets). This will allow you to build on a good amount while costing about the same as buying a new engine yet being able to support more power down the road.
It's really your call, go take a look at it. Ask to hop in, turn it over and run for several seconds to hear the sound(s) yourself..shit bring a camera to upload or ask a dealer what they think. If the seller refuses to let you turn it on then you should see a red flag, if it's knocking already it isn't going to hurt it any worse idling for several seconds. You don't have to buy that day.