I have a 1998 Ford Expedition. I have been told that I have a bad coolant leak coming from rear freeze plug and that I should replace the engine. My question is, do the engine need too be replaced or do I just replace the freeze plug.

If the BLOCK is not cracked, There is NO reason to replace the entire engine, only the freeze plug(s).

If you look on the side of an engine block you will see a line of circular depressions about an inch and a half in diameter and about a quarter of an inch deep. These are actually holes in the side of the engine block which are plugged with a dish shaped metal plug called a "freeze plug" or "expansion plug". WHAT FREEZE PLUGS DO As with many things on a car, there is an "official reason" and a "REAL" reason for freeze plugs. The official reason (and the source of the name) is this: If you run just water with no antifreeze in your car's cooling system the water can freeze. When water freezes, it expands. If water freezes inside your engine block, it can expand and crack the block, destroying the motor. Freeze plugs (or expansion plugs) will "pop out" and supposedly prevent this. In reality this doesn't work all the time: I've seen MANY blocks destroyed by cracking without the freeze plugs popping out, or if they do pop out the block cracks anyway. THE REAL PURPOSE OF FREEZE PLUGS OR EXPANSION PLUGS Engines are "sand cast". A special type of sand is poured into a pair of boxes. A "die" is pressed into the sand, making an impression of the engine block to be cast. The sections of the mold are then put together and molten iron is poured in, forming the engine. This is why engines have a rough texture on most areas: this is the texture of the sand used to cast them.There have to be "cylinders" made of sand in the middle of this mold to create the cylinders of the engine block. These chunks of sand can't just "float" inside the mold: SOMETHING has to hold them in place. There are little columns of sand that connect the cylinder mold to the outer mold half. The mold for the cylinder "sits" on top of these. After the block is cast, these holes are machined smooth and a "freeze plug" or "expansion plug" is put in to plug the hole.
THE PROBLEM WITH FREEZE PLUGS OR EXPANSION PLUGS The problem with freeze plugs or expansion plugs is that they are made of very thin metal, AND THEY RUST!!! From the factory they are made of galvanized steel, and if you always run a 50/50 mix of antifreeze in your cooling system you should never have a problem. Unfortunately many people don't do this, and the freeze plugs rust through, creating a cooling system leak.When I replace freeze plugs or rebuild an engine I always use brass plugs: they only cost a tiny bit more and will not rust through. The manufacturers don't use brass plugs of course: they cost a few cents more, and they will save a penny anywhere they can: pennies add up to millions of dollars!
SIGNS OF BAD FREEZE PLUGS If you have a bad freeze plug your vehicle will leak coolant. If you have a slow cooling system leak that comes and goes, you may have a pinhole freeze plug leak. l Freeze plugs are in different places on different cars, but normally they will be down the side of the block (at least 3 of them) and in the back of the block, between the engine and the transmission. Some are fairly easy to get to, others require removing various parts off the engine, some even require removing the transmission or engine to replace! Some cylinder heads also have smaller plugs in them, often under the intake or exhaust manifold.So if you have water leaking down the side of your engine, or water leaking from the hole in the bell housing between the engine and transmission, you probably have a bad freeze plug. Sometimes the hole in the freeze plug is very small, and can periodically stop when a piece of crud from the cooling system jams in the hole.
FREEZE PLUG REPAIR If the leak is slow and small, a stop leak or block seal compound might work. I have had good luck with K&W Liquid Block Seal: it's good stuff! Of course, as with any "rig" of this sort, it might not work, might not last for long, and could clog up something else in your cooling system. The right way to fix it is to replace the freeze plug. FREEZE PLUG REPLACEMENT To remove a freeze plug, first hammer it into the block with a big screwdriver or a large punch. It won't go far into a modern engine: there isn't much room behind the plug. When it "pops through" you can easily pry it back out of the hole sideways with a pair of pliers or a screwdriver. Be careful not to scratch the surface of the hole where the plug sits, or it could leak around the circumference of the new plug.
After the plug is removed, clean the hole in the block with sandpaper to remove the corrosion and old sealant. Once again, if you don't do this the new one might leak.Normal freeze plugs are hammered in with some sealant around them. I use aviation grade Permatex sealer.
A special tool is made to install freeze plugs: the tool is available at a good auto parts store. In a pinch you can use a large socket that just barely fits inside the rim of the plug, however this can damage the new plug if you aren't careful.
If you can't get to the freeze plug to hammer it in, you have to take off whatever parts are in the way to access the plug. Sometimes it's easier to remove the engine from the car. Another option when access is limited is an expanding replacement freeze plug. These replacement plugs are made of either copper or rubber. A nut on them expands the plug against the block when tightened. These plugs can be installed in areas too tight to hammer in a regular freeze plug. I have had bad luck with the rubber type: they blow back out quite often. I have had good results with the copper type (made by Dorman).
I have not had good results with either type on Ford products: Ford for some reason makes their freeze plugs in "odd" dimensions, like 1 and 51/64 of an inch. You can get the copper type plug in 1/8 th increments, but it won't expand enough to fit the Ford size. The rubber type will SEEM to expand enough, but it will stay in for a week or so then blow out, dumping all your coolant out in a matter of seconds!!!
So on all Fords I just do whatever it takes to pound a regular style brass plug into the block.

Here are some pictures of a Ford F-150 truck freeze plug job I did.

The hard part is taking the exhaust and intake manifolds off: after that the job is easy. CAUTION! I have one issue with this freeze plug video: He uses no sealant on the new freeze plugs, and he's not using brass freeze plugs.
I always use aviation grade permatex sealant on freeze plugs. It's available at any good auto parts store.Don't use RTV silicone: I've seen freeze plugs "pop out" with silicon seal.
Freeze plugs will work when put in "dry", but they might "weep" a small amount of coolant.

You replace the freeze plug