I'd say what you've all pointed out about sugar not being able to get to the engine is well and true EXCEPT that there was already a reason to take it into the mechanic.
Not the "I just happened to take my explorer to a mechanic and this is what he ended up finding" scenario.
So it doesn't make any sense that the mechanic is putting sugar in her vehicle to get a lot of money out of the deal. Something else was already wrong in which the mechanic could legitimately expect to get money for anyway.
Is it possible that you could have left the door unlocked to your vehicle? Maybe the hood was popped and sugar poured directly into the engine?
Either way, you need some security. You also need to take every opportunity to have this guy towed again, and again, and again. Personally, I wouldn't turn the other cheek on this one. The guy parks illegally, you have him removed, he retaliates. Treat others as you'd like to be treated. Its quite clear how you're being treated. That inevitably means he wants to be treated the same way.