It does sound like head gasket problem because you said there was some crud in the coolant (I assume it's a mixture of oil and coolant). If you have full coolant, but the temperature goes up, it's either stuck thermostrut or dead head gasket. If head gasket goes, the coolant color changes sometimes. If you see white smoke coming out of tail pipe at normal operating temperature, it's usually the sign of head gasket leak or cracked block.
As for the cracked block, it "can" happen. When the head gasket goes, the high temperature can warp the head and damage it. But, it doesn't happen all the time if the gasket is replaced soon enough. So, let's hope the block or the head didn't get damaged.
$1900 sounds a little high, but this cost includes a new water and oil pump. Also, Subaru engines require more work to replace head gaskets than other engines.