Ah, okay. So that puts things into perspective. It doesn't sound that bad, especially when it is dealer shop rates.
You would want to ask the dealership where the engine is from, whether it is a used motor pulled out of a wrecked car, or one that was just sitting around the shop from a previous customer's vehicle. I would take it a step further to inquire more about what caused the engine to seize, and what parts are damaged. You could even get the engine rebuilt for $2500 depending on what is actually broken. Dealerships tend not to take on engine rebuilds, but this is typically on a per-case basis.
Regarding the engine swap depreciating the car even more, this really depends. If the engine has lower mileage than the original one, and has a properly documented history to prove the engine swap, then some people out there may overlook it, while others may run away from it, thinking it is a lemon. Being that it's a Toyota, most people would run away simply because of the demographic; these are typically non-car people. It would take a unique individual to see real value out of that, maybe someone like fliptuner.
I think you and your wife need to have a serious discussion on what you want to do with the car. You'll both need to come to an agreement on whether you guys want to keep it for a while, or if you want to get something else in the near future and weigh the pros and cons. Only you can answer this question because we don't know your personal circumstances and any other variables in life that can make or break our day. If this is a weekend car, and it's something you use to haul your kids around in, and you don't care about having the next newest car and the latest gadgets, perhaps worth considering to keep for a while and suck up the costs.
Rare to hear about a Toyota engine seizing. But that could be any car/make/model. I grew up on Toyota and still own one today. Saddens me to read about problems like this.