This is on my roommates 2001 A4 Quattro, V6. He blew his water pump, threw timing, I only checked one cylinder, but he definitely messed up valves on his #3 cylinder...

What do we do next, look at new engines, or replacing all the valves?

 

Pull the heads and replace the valves. The pitsons should be fine. If you are DIYing then you'd spend a hell of a lot less as opposed to replacing the engine. Even if you aren't, you'd (he'd) spend less. What was the engine speed like when this happened? Hopefuly not at redline!

 

Our shop currently has an A6 3.0 that did the exact same thing and the engines are almost the same so it should apply. He is having to do almost a full rebuild because 3 valves were bent and they managed to crack 2 pistions. Your going to have to take the heads off and go from there.