Okay...I'm an idiot.
I figured out what the book was talking about. I pulled out the "buckets" (aka valve lifters?) and shims (left the shims in the buckets actually). And then....drum roll please...I pulled off the head and block to reveal what OKC_Kent so aptly called "the carnage".
Here is the a pic with the head off. I'm no mechanic, but already I can tell the pistons aren't where they should be.
Here is a better view with the block off.
Now for some exciting photos! Here is the underside of the block, which shows how the sleeve for piston #1 is all chewed up.
Here is some more carnage in the crankcase.
And...here is what I think caused the failure.
Yep, it looks like the connecting rod for piston #1 broke. It then tossed around the crankcase chewing up the inside, tearing up the cylinder sleeve, and finally causing some shrapnel to exit the case. The broken piece of rod got wedged in the case, which is preventing the crank from turning. I also noticed that the abrupt stoppage must have caused the crankcase to buldge or flex out in certain spots ever so slightly.
I'm no expert, but I think this engine is shot and good for some minor parts. Oh well, it looks as though I'm in the market for an engine.