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The pistons may be collapsed (the piston skirts are no longer the shape they should be) and that would be the source of the knock you mentioned. It's actually piston slap and should be most noticeable when the engine is cold. The .006 clearance isn't really TOO excessive though, and should make for a fairly quick engine, but one that will NOT take high loads without a thorough warm up.
As for the price of the overhaul, I would say that is reasonable considering I paid $800 at Toysport for the same thing without the bore job and new pistons, and fresh bearings but no crank polish.
I would ask them how much if you supply the gaskets and oil pump.
Good luck and keep us posted.
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