The shop was probably trying to rip you off. $1750 is very high for a head gasket replacement anyway even with machineing. Even still, MAKE SURE there is no water in the oil, oil in the water, or any other mysterious oil/water leaks.

A blown head gasket on an NA car is typically caused by overheating. Its a possibility that your thermostat went bad and the head gaskets blew because of it. I would not suspect a head gasket problem at all though unless you were losing water or oil without it dripping on to the ground.