Yes, once same overheat issue happened with my vitz 2001 1sz, mechanic told me that these engines have got very very thin head gas kits, so the chances of getting it done right are quite less, thats why here mechanics recommend to change half assembly.
Go for 1Nz with auto trany, u will enjoy your car much more. It will cost you almost between 60-80k Rs. for swapping in new 1nz with complete uncut wiring, labor & after giving away your old engine, gear. If you are not an Auto transmission fan, then u also have an option of manual gear.
Actually 2sz is also a good option but as we all know that toyota xli/gli also uses 2Nz engine, so NZ series engine is "easy to understand" for our local mechanic, they know each & everything of these engines due to Xli factor and parts for this engine are also easily available in our markets.
And swapping 1nz in your car is not going to be a major swap because you don't need to alternate any mounts. You just need a clean engine with complete uncut wiring, ECU, good mechanic & best electrician in town. Although You just need to upgrade your suspension & brakes for better handling & driving experience.