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if you're losing that much oil... seems like there are only a few likely possibilities
1) burning oil through rings
2) PCV dumping oil into intake
3) bad external leaks
compression test is good. leakdown test is better. I'd also check your intake to see if any oil is going through there.
if the cylinder walls are damaged, new rings won't help. which would explain why you're still having problems. burning oil will eventually cause your cats to fail... as they'll get clogged up.
If they can't fix, I'd keep pushing for a new engine. and have them inspect the cats same time.
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