Starting it a few minutes at a time to break in a camshaft!? 15 minutes initial run time isn't even enough, 25 minutes to a half hour at least and at 2500 rpm varying the rpm's slightly, and that's after pre-lubing the engine. I can't see how that wasn't caught sooner, first thing you do after initial break-in is check for oil and water leaks then change the oil.
......that rebuilder should be tied to the back of the car and dragged a few blocks. O-ring a block ! , he probably doesn't even know what that is. Never torqued the head bolts either or rechecked them. You didn't blow a gasket, they were just leaking. It is lucky that the cyl didn't fill up enough that when it turned over that the cyl didn't crack. I would still magna flux the cyls or pressure test the block to make sure that didn't happen. I'd take him to court. Good you found the problem but sure was not what was thought to maybe be.
Everything was fine after initial run ups. I checked it all before and after each run., And the lifters were in perfect shape when I took the top end off. I think the water was not enough to make the standard signs and it all let go just after the last run. I didn't see anything wrong with anything? Even the head gaskets looked brand new. Sent the heads in to get checked and they are fine. The guy who did the balance just didn't put it together right is all. Dave.