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four new tires?
I have a 98' legacy outback with a set of kingstar tires that have approx. 20,000 miles on them. One recently was punctured and les schwab is telling me it's destroyed. They've also said that due to my AWD I'll need 4 new tires. Any advice on whether this is true? If not, how can I find an acceptable used tire? Also, should this be covered by Schwab's warranty?
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That said, yes, you can use a used tire (as long as it is the same model, tread pattern, etc) with similar tread depth, if that is your preference. Finding one that is an exact match might be a trick, though! Another option is to have a new tire shaved to match the existing ones. Not all shops have the equipment to do that.
I had a '96 Outback that went through a nearly identical situation as your '98. The tires that were on it had a 70,000-mile treadwear warranty and one failed (internal sidewall failure) at ~22,000 miles on the tires. They had worn about 3/32 of an inch (started at 12/32). A 3/32" difference amounts to about 0.60" larger circumference on the new tire.
At the time, I did not know about the circumference issue, and the shop simply did a pro-rated warranty replacement of the bad tire. After that I definitely noticed the strain in the system, and it was probably a major contributor to the whine that eventually developed in the rear differential.