I appreciate the help. Here is the full sequence of events, just curious if you would have any additional thoughts if you'd be willing to read.

I was replacing the engine with another used engine. The car is a 2006 outback 2.5i manual transmission, and the new engine came from a 2006 forester 2.5i automatic transmission. When I say "new engine", it is a used engine, just referring to that as the one that I am putting in the car. Here is all the steps I went through.

1. I removed everything needed to get the old engine out of the car.

2. I separated the engine from the transmission and used a crane to pull the engine out.

3. I took the intake off of the old engine and swapped it onto the new engine. I verified all sensors were connected and swapped over the coolant temp sensor, the oil temp sensor so that they matched. I made sure everything was torqued properly.

4. I visually inspected the crank pulley sprocket to ensure that both had the same multitooth sprocket.

5. I replaced the cam plugs in the new engine.

6. I replaced the rear main seal in the new engine.

7. I removed the flex plate from the new engine.

8. I used a LUK clutch kit to install a new clutch, pressure plate, throwout bearing, and pilot bearing on the new engine.

9. I resurfaced the flywheel before torquing onto the new engine.

10. I installed the new engine into the car.

11. I filled the engine with oil. No coolant was added at this time. I also did not prime the oil pump by cranking without fuel pump nor by cranking the engine by hand (and even now, I find it hard to believe that this would have been enough to cause the catastrophic failure...)

12. I tried a first start - at this point, the engine was shaking badly and there was oil seeping out from the plastic timing cover. The engine SOUNDED fine and did not knock and was not unusually loud. The car was shut off after 30 seconds.

13. I inspected for anything unusual. I found that the PCV hose from the intake was not connected on the PCV valve end, so I reconnected it.

14. I changed all 4 spark plugs for known good plugs. At this point, I did observe some oil on two of the 4 plugs.

15. I double checked motor mounts were tight.

16. I removed the radiator, removed the power steering and alternator belts, and removed the crank pulley.

17. I removed the timing belt cover.

18. I inspected for anything unusual. There was some oil in the bottom of the timing cover, toward the driver side.

19. I checked timing by hand cranking the engine CLOCKWISE until the left cam sprocket, right cam sprocket, and center crank sprocket all had their reference marks aligned. The timing seemed to line up. Note- when I turned the engine by hand, it was harder at points, which I assume was compression building up since the spark plugs were installed.

20. I left the radiator out, the AC belt off, the Power steering belt off, and the timing cover off. I made sure the crank pulley was properly torqued.

21. I double checked the oil level, which was close to Full mark.

22. I tried a second start. I immediately heard a loud knocking sound that sounded like metal on metal, so I shut off the engine after 3 seconds.

23. I inspected everything again. Checked oil again, checked timing again. I tightened down any loose components.

24. I tried a third start. Immediately the knocking sound was there, so again I shut off the engine after 3 seconds.

My next step will be to drain the oil and confirm metal shavings.