The "deposit" might be a ploy to either get you to go away or to try to get more money from you through implied pressure. The dealer may have overpaid for the car. I have seen this behavior from a dealer before, about various model cars. These cars do seem to have a somewhat volatile price. At one point there are lots of nice ones for $18-20, and then suddenly they are all over $25000.
When I bought my current one a few months ago, I had an interesting talk with the salesman at the dealer. Apparently the dealer had been initially asking substantially more and failed to sell the car after several months. The price I paid was apparently only $1100 more than they bought the car for. I paid $24600 with 62000 miles and in almost completely perfect condition, which I considered to be a very good price.
All this being said, you do not want that car. It's worth $7500 tops. If there is the potential of engine trouble, you will be opening a can of worms that will never close. You will only end up selling this car for even less than the relatively small amount you will pay for it and taking a loss on whatever work you do on it.
Save up some lunch money for a few months and pay $14-16000 for a mechanically decent car with 150000 miles or so.
Definitely.