Last week I bought a 1.7L and 5 extra heads (J,S,G, Bus, 914, 1.7L and 1.8L mix match of heads) plus a bucket-o-parts. The motor did the same thing. It only had two bolts holding the one head on and white corosion in the intake ports. When I took off the head I expected to see a dropped valve guide, which I belive would cause the same symtom, but what happened was that rust formed so thick on the cylinder walls (and on the crank for that matter) that the piston could not past TDC. First take out the spark plugs, they can make turnning a motor over very hard. If that does't work loosen the rocker adjustment screws, you should probably replace them anyway. If it still won't spin momma gonna buy you a diamond ring. No seriously the heads will have to come off, either the rings are seized in rust or the seat dropped on a vavle. One more trick to try first is one I used on the other 1.7L I have running in my car now, "PB Catalyst". It is a compression booster, carbon remover, "top end" lubricant that is sprayed through a spark plug hole. It should break up any corrosion and allow the motor to fire, but you are taking a chance that the rust didn't damage the rings so bad that they might break. After you have the motor spinning freely (if you don't have to take off the heads) do a compression test BEFORE you try firing up the motor. If you want to know, I can tell you exactly what I did to the 1.7L I have running in my car now. It sat for 8+ years and now has 500-600 (the odometer is a little off) on it with very very little oil consumption and decent power.
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