2002 Ford Taurus SW overheated once and mechanic says I need a new motor? Is this possible?

I recently purchased a 2002 Ford Taurus SW.  It passed inspection and drove like a dream.  I drive all highway miles and do not push it hard.  All of a sudden my MPH started dropping so I pulled over immediately.  When I stopped, smoke came running out of the hood.  I put a bunch of water in it, but it kept leaking right back out.  I had it towed to a mechanic and he informs me that I need a new motor ($2400.00).  He tried telling me that there was a rusty spot on the corner of my motor that blew threw and there was no other way to fix the problem.  I just find this hard to believe because it was just recently inspected, It drove like a dream, its never overheated in the past and the check engine light never came on.  Wouldn't they have found the rust on the motor during the inspection?  Does this sound common to you?  What else could this be?  Thank you in advance.