That sounds just like my original Spyder motor when it went.
Rev it to 3.5k RPM's (almost exactly, you can tell when you hit 3.5k because the noise starts), and "tik-tik-tik-tik". For me, it was a spun rod bearing. I could have cried, because I had owned the car for less then 6 months as well. 1zz's are notorious for doing this, especially with the precats, but not only with the precats. My precats were pristine. It had just been burning oil, ran low, and blew the engine.
I would be like everyone else, and vote you go 2zz (I did recently, and I'm very glad I did), but I was in your situation. Just bought the car, didn't have any money at all, much less $4200 or so for an engine swap.
There's good new and bad news. Bad news is, your engine is more than likely blown. As someone who's owned at 2 different engines with this problem, I would put a ton of money on it...if I had a ton of money.
Good news is, it's not as bad as you are thinking.
Let Toyota do the work ONLY if it is covered under warranty. If it's not covered, they will charge you as much a 2zz swap for a motor that'll just do the same thing over again (they'll leave the precats in it).
So, if it's not covered, do this IN THIS ORDER:
1. Gut your precats. This is only after you have determined, for sure, that Toyota won't do the engine work for free. There are threads in the Library explaining this process. If you put in a new engine with bad precats on it, the new engine will sound just like the old engine in no time.
2. Buy a used engine. You can find a good Corolla motor on carparts.com for around $400. The Corolla motor fits, but takes a couple hours of "extra" work (easy stuff, though) to swap it over. If they tell you a Corolla motor won't fit, laugh at them. I drove a Corolla 1zz motor in mine for months, and now another SC member is driving around with it in his car.
If you want a good used Spyder 1zz engine, those can be found reasonably priced as well (ask around here, for instance, Oilfield Trash mentioned above that his was for sale). A new engine can be in your car for well under $1000. I've done it, as have tons of other people.
3. Put the new engine in. If you do this yourself, you'll save a lot of money, and you'll gain priceless knowledge of your car. I had never changed oil in a car before I swapped my motor, and the helpful people here made it possible to swap it in a weekend.
Or, pay someone else to do it, and point them here for easy tips from people who have done it before.
4. Drive away happy.
Our cars are great, but the 1zz motor does this a lot due to the precat problems. If you gut your precats, change the motor, and check your oil regularly, you'll be safe (as safe as with any car, anyway). Don't let this experience ruin you on these cars. Stick with it. You'll be glad you did.
MoAtt