Really sorry to read what you’re going through. I can only answer some of your very valid questions.
Lemon law in general, and on used cars specifically, varies by state jurisdiction. Cali used to have some of the broadest protection that included used cars, but a court ruling earlier this year nixed that. I believe there are Federal-level protections, but I am not familiar with them.
As far as engine replacement diminishing value, I can only offer a single data point: it doesn’t seem to have in my case. I replaced the engine in my V2 about 4 years ago and the trade in offer for the 5BW I have on order is right in the middle of KBB private party estimates (subject to direct appraisal, of course). The car was long past any extended B2B warranty, but the engine itself came with a 1-year/don’t remember the mileage warranty.
A gallon of oil has no place to hide. There’s only so much that could bypass the pan and not be dripping off something unless…it’s going out the tailpipe.
That much oil should be wreaking all kinds of havoc with the plugs, O2 sensors, and cats, but sometimes you just gotta apply Occam’s Razor. They should have done visuals on all of those parts, even in the absence of DTCs out the wazoo.
Your dealer saying they may have to keep her and put on a 1,000 miles just to prove what you have been telling them smells like BS to me. So as they witness the oil level dropping like a 2-stroke, what then? How does that help get to the root cause? They/GM should be running an exhaust gas analysis (sniffer) test, which should produce positive or negative results in less than an hour.
Good luck! I hope GM does the right thing for you.