If you put any rpms to it...does the knock stay consistant with the rpms? If yes...you have a spun bearing/rod knock.
Secondly...rod knock and piston slap are two different things for explanations sake. Piston slap is your piston slapping the cylinder wall and most forged pistons will do this. Now...assuming you're on a OEM engine. You will not have piston slap normally. Now rod knock normally happens...when your bearing inside of the rod that is connected to crankshaft is broken or loose (also known as a spun bearing). Causing your rod to flap around violently instead of staying connected tightly to the crankshaft. Now I know what you're thinking. Yes, when this happens your pistons will be slapping the cylinder walls also.
From when my engine spun one bearing severely and a second one was on its way out. It pretty much sounded like your car and the noise was consistant with the rpms. My spun bearings were from a abnormal occurance and I'd rather not take this topic off track. But, I'd say that what the subietech told you is pretty much right.
I got a lot of new stuff and upgraded when I was in there (again). A lot of what I got...you won't need. But, I will say this is what you will definitely need:
1) New Short Block
2) Tank the heads and see if they're damaged. If not, then you can leave them stock. IF damaged then you will either need new valves/head job or will be fixing whatever is broken.
3) You will need a complete new oil system. Oil Pump, Oil pan, Oil cooler (if you drive a auto), Oil filter assembly, and can't forget a new Oil Filter. With new oil...of course. If they can rebuild your pump...then that's up to you. You just want to make sure no shards of the bearings are in your oil system or you risk damaging the new engine and turbo.
4) See if they can send the turbo out to get inspected. Blouch Turbo inspected mine and fixed the damaged Intake side. (I got a cheap upgrade while Blouch was fixing it. The turbo got upgrade to a custom Dom 3). The last option is more expensive and its assuming the bearing shards damaged the turbo and just get a new turbo.
The rest of the 2.2 stroker kit and upgraded valves/heads and intercooler would just be a upgrade. Even if you did that...you'd still need a tune for the new engine/compression. If you decide to upgrade the turbo. Guess what? You will need larger fuel injectors and a high flowing fuel pump as well.
So, you can see what your options are. Repair it to stock, Repair it to 2.2 engine (needs a professional tune), or Repair it to 2.2 engine with larger turbo, intercooler, and fuel system upgrades (needs a professional tune).
Let me just set the record straight...the needs a professional tune is not a option. If the subietech is from a dealership/mechanic at ma and paps car shop...then I'm not to sure I'd even consider running the engine until you get it to a professional tune shop. You'd need a limp map from the tuner to drive it from said dealership/mechanic shop to the professional tuner's. Is this complicated enough for you? LOL
Again, reparing the car to stock requires no tune. So, you have some options to decide from.
378awhp/373wtq Custom Dom 3 & CBRD tuned 2006 STI.
"When in doubt...flat out" - Colin McRae