First, smack your neighbor. (not for selling you a broken bike, but for only riding a great bike like a road star for 27 miles)
Second, buy a repair manual. (their is nothing more satisfying than knowing what the guy behind the counter is talking about)
Third, smack the guy that gave you that estimate. (1600 bucks, ouch)
Go buy a stethoscope from your local autoparts store. Find out if the noise is from the front cylinder or rear, and top of the cylinder or bottom. Its metal so the noise will travel far in the engine and the differance will be slight.
If there was no noise when the bike was parked, and it hasn't been touched since, I could imagine a lifter has collapsed (lost its oil). If the noise if from both cylinders at the top, its probably collapsed lifters.
Smell the gas. (not too much, its addictive). If it smells like varnish, its bad. If it smells like fuel oil, its diesel. If it smells like your lawn mower, your good.
Take a plug out and reattach it to the plug wire. If you smell gas in the cylinder, let it air out for a little while. (this also means that the
carb is supplying some fuel). Place a rag over the hole just in case. Crank it and see if its firing (don't touch it while cranking, just rest the plug on something metal). One or two revolutions should tell you.
Check your fuses and cycle the kill switch and kick stand switch several times.
Clean the carb. Shut off the fuel valve on the tank and take a small sample of gas before the fuel pump. (don't use a styrofoam cup). (Cover anything that gas can fall on) If its orange, you have rust. If its clear(ish), your dealer guy is using an ouija board.
Favoured: 0
I am still confused as to why the dealer would not cover it (the top end noise) with only 27 miles. I realize the rusty tank thing and 
) , replace the 
When did your friend buy this bike? You sure it was only 3 months it was sitting? A R* only comes with a one year warranty; regardless of mileage; whether it be 100,000 or 27. Did your friend purchase an extended warranty by chance?
