I have cashed in my 401K and know I have 60 days to reinvest to avoid penalties. However, I now need surgery and was wondering if I could use some of my 401K money to pay for the surgery and not suffer penalties... is that possible?

One of the allowable reasons for hardship withdrawal is for medical expenses. So you can use the money for that without paying the 10% penalty. You will still need to pay the taxes though.