The word Diesel specifically seems to be a very "dirty" word when it comes to importing into the US. On multiple occasions on Ebay I have found and purchased OEM spare parts for my small flock of Listers only to have them hung up and seized by the 3rd party processor that manages the global shipping program for Ebay. Every time it has been because they are listed as diesel parts. Luckily Ebay's policy when that happens is that the seller gets to keep the money and I get a refund as well. I assume they just auction the stuff they seize locally.
Just like importing an engine as an "air compressor" or partially disassembled as "machine parts" one could probably try the whole "hit and miss" description but it would be a roll of the dice. In my experience Customs is very knowledgeable when it comes to engines and equipment. I agree he got very lucky. Then again depending on the description used to import it there could be a case for fraud. Would CBP or EPA come after one person for one engine? Who knows, stranger things have happened.
By the looks of it that is not the best quality engine. For the price, finding an original Dursley made engine that is completely legal to import would seem a better option to me.