I'd go for it. If it has a blown head gasket it's probably an early '96 model. My first car was a 96 SR5 but it was manufactures in March of 1996 so it was later in the model year. I personally think they had made a lot of improvements in the new redesign (first year of the 3rd gen) and the later 1996 models are "better" than the earlier model ones.
My brother drives the '96 now and it has 225K on it. I put over 100K on it and I bought it at 81K, and it's always had proper maintenance. That car is the most comfortable and smoothest-riding 4runner I've driven, and my family has had or currently owns a 1989, 1994, 1995, 1996, 1997, 2001 and 2002. I drive an '01 now but I miss the '96. Mine's a "lowrider" and even though the difference is small I still miss the smooth ride I had before in the '96. Driving was easier because the engine would slow down when I took my foot off the gas, and I didn't do nearly as much braking as I seem to be doing in my '01. I could go on but you get the picture.
Any Toyota is nice. Even those that need a lot of work can be brought back to a nice level. My parents had a blown head gasket in their '95 and they replaced the engine back in 2005 (yes, it took that long for it to show up and yes, the dealership had changed the head gaskets during the earlier recall but obviously it didn't fix the problem). Everything else on the car is sound and it will probably last for many more years. $500 bucks is nothing even if you have to invest in an engine.
Keep us posted and good luck1