Well, in order to locate the problem you'd have to be willing to take apart your block and inspect it. What year is your car and what version, ie. ex, dx, ect.?
Edit: Nevermind, It's a 91 DX. My suggestion is if you really want to stick with this motor, just have a mech take a look at it for you. It may cost a little for labor because he'll have to lift out your block and inspect it, but it may be more costly to swap motors in the long run. Especially if the only problem you have is some bad piston rings.
Judging from your symptoms, I'd have to say you most likely have some bad piston rings. They're probably not forming the proper seal, are worn, and need replacing. But the only way you'll really know is if you have a look at what's going on in there.