5w-30 is too thin, but I wouldn't expect it to cause damage on it own. It will tend to burn quickly, and when the oil gets low then problems will start.
It sounds like the big ends are knocking, if it is it will get wore very rapidly.
I think that you will find that a car needs to be fit for purpose when sold by a dealer, usually if something terminal goes wrong within around 6 months then the dealer is responsible for fixing it whether there is a warranty or not.. The fact that they have advertised it as having a full engine rebuild also goes in your favour.
If they won't play ball, speak to the citizens advice bureau or trading standards, they will be only too happy to help.
Just don't tell the garage when you take it back that you used 5w-30 oil, as they may use it as an excuse to wriggle out of fixing it.
You used a 10w-40 Semi, synthetic didn't you.