Bad... but not really, if the rings are the only things that are damaged. Check the sleeve and see if there is any scoring from the rings/pistons walking around in the bore- this could happen if the rings are really worn out. If just the rings are damaged, you can replace them and go on your way. You probably should swap them out anyway.
I would say this is a GOOD thing. Doesn't look like the guy is sellin' ya a piece of shit, since he took the time to teardown and make sure things are working properly. I would be happy with this development..
i got ripped off on the first b16 i had bought from japanese engine specialists cause the piston rings were fried and it blew smoke also he sent me an automatic motor which had weak cams if you want a good motor go to hondamotorsonline.com the owners name is steve and he sent me a 5 series B16 longblock for $450.00 shipping that is phat and the car hauls