ok, back on topic:
The problem is that dealerships are used to screwing people over and getting away with it (we all know this).
So you can just be like everyone else or fight back.
There is a lot of money at stake, not to mention the ethical issue.
Caleb says he didn't mis-shift, so that's where we need to start to build the offense (defense gets you nowhere - no "bargaining"). Take it to them.
You need to get your hands on one of those high-end OBD-II scanners that reads the freeze frame data that got stored with the CEL (check engine light). I am assuming his engine blowing up caused a CEL.
If the freeze frame data comes back with the event occurring at or below the rev limit, then they cannot prove he mis-shifted whether he did or not. If the freeze frame data says the event occurred somewhere above the factory rev limit (highly unlikely) then he may have downshifted into a gear that was too low for his current speed. For example, this could be redlining 3rd and accidentally pulling into 2nd instead of the intended up-shift into 4th.
It is imperative to get this freeze frame data. Any auto mechanic shop has this more expensive scan tool which costs $400-$500 at Kragen. You'll have to have the car towed there. Tell repair shops you only need the data read and printed (takes less than 2 minutes so don't let them charge you a lot!). If you can't get it printed, go somewhere where it can be printed. Get the name(s) of the tech(s) and have him/her/them sign off on the work. Have them sign that no other work was performed other than having the data read. The Toyota dealer will not provide this to you. If the Toyota dealer already reset the data, then they can't prove he mis-shifted unless they have a printout of the over-the-rev-limit rpm (assumming it is legitimate). You might want to have several witnesses with you when you have the data read at the auto repair shop.
Once you have the data, you have all that you need to legally require the Toyota dealership to cover the blown engine. Again: if they cannot prove he caused a mis-shift then they have to honor the warranty. The GTS is a motorcycle trapped in a car's body and it is meant to be revved high. If it is revved high and blows at or below the rev limit, then it is legally defective.
If the dealer doesn't budge... Immediately turn and walk out of there and take it to an attorney who will use your data and reasoning to make the dealership honor the warranty. It might just take a "wake-up" call from the attorney to the dealership OWNER. Or if the dealer wants to take it to court, you will win more than the cost of the engine. Either the legal fee will have been recovered or the lawyer will have been paid on a contingency basis (meaning only if you win).
Do have the attorney contact Toyota to let them know that for their own good they should step in.
Please consider my suggestion. I feel very strongly about corporations defrauding consumers, and there is a good chance I will work in this area when I become an attorney.
At the very least, have an attorney make the phone call. Don't think about losing or backing down or buying an engine at this point. Fight back, and unleash the pissed-off kitty!!!