First of all I respect you for the way you have looked at it.  Some would have automatically assumed the man screwed them without trying to give them the benefit of the doubt. 

That being said the question is did he know about it before selling it to you?   I agree the evidence indicates that, more than likely, he did.  How long had the man owned the machine?  When was the last time he said he used it?  Did it look like it had been sitting a while?  Any indication it had been taken apart recently? Was it possible to know what was wrong with it without taking it apart? 

Now we get to the issue of the honesty of the seller.  When you told him what happened did he seem genuinely surprised?   Did he ask many questions about it or did he quickly say he would pay for the water pump without even asking what it would cost or asking if it was low on coolant or was the radiator plugged, etc?  Just curious, would you happen to know what a water pump would have cost?  If he knew it was overheating and thought the water pump was bad why wouldn't he have replaced it himself rather than selling it and paying someone else to do it?  If he wanted to do the right thing why wasn't he willing to at least help on the big ticket item when he was willing to foot the bill on a small ticket item?

Sorry for all the questions but your situation is a tough one.  Don't expect to get answers to all the questions, just hoping you find a nugget in there somewhere that helps.