***"Do you think i could rebuild my motor?"***
NO!
***"would i be better parting out the tractor?"***
I don't have enough experience in how big the market demand is for used light line Deere's to advise one way or the other on that aspect of your situation.
Dime sized chunks flying out of the block usually demand around $1,000 (or more) to correct.

The Wheelhorse 312-8 could have lasted several lifetimes. You didn't know what you had!

I really liked the 312-8 but my mower deck was rotted and i could not find one that was in better shape, and i needed to mow grass! I wish i had not gotten rid of it

You can find used engines either on craigslist, LT junk yards, Flea markets, or ebay. I see them every now and then. Don't have to be that exact model if you have skills? If not better get the exact same one for easy installation.

Expect to pay at least $300 to $500 for good one and probably as mowie said grand or more for new one. Now the next question is it worth it to you to spend that much on LT got 800 hours? Me if I had freeby engine laying around would be the only reason I would fix it. but that's me.

"Dime sized chunks flying out of the block usually demand around $1,000 (or more) to correct." I like that Mownie! It almost seems as though there should be a sliding scale as to coin size. Well, a quarter size hole will run ya... :)

I know a grapefruit sized hole in a Detroit Diesel Series 60 block will cost you around $12,000. :^)

Everything else on the tractor is in really good shape. I'm not sure how it has 800 hours on it. The mower deck still has paint on the bottom of it. It looks almost brand new.

You do see posts from people who left their key on and amassed a lot of hours...

I have a chance to get the same motor but 21HP the extra HP won't make too much of a difference right?

Here's a new short block on flea-bay: http://compare.ebay.com/like/180617719119?var=lv&ltyp=AllFixedPriceItemTypes&var=sbar&_lwgsi=y