Well, I wondered about the piston being scored like that.... but couldn't tell if it was just an anomaly in your earlier pics, or if it was really there.
The piston damage, was caused by compression/hot combustion gas going past the rings. Severe blow by. What happens is, after ignition, the hot air/ or the flame-front actually goes between the piston rings and the cylinder wall. That causes the edge of the piston to get very, very hot. Then it just erodes it away like a blow torch. That erosion was on the valve side of the piston because that is where the plug is and ignition starts. It was running a little rich, and I'd say just a little out of time. Lugging usually plays a role in this type of damage also.
From these recent pics, we can also see, that not only was the first ring not sealing, neither was the second. (It's not really designed to, and won't handle doing the first rings job for very long.) The piston skirt is dark brown/black from the leaking compression and oil being "cooked" on it from the heat.
Couple of things I'd check, (this is from what I see in the pics):
*Rod journal on the crank is probably egg shaped on the "power" side. I hope you had planned to grind it.
*In one pic the cam looks blue near the exhaust lobe. May have gotten hot. Look it over good, and mic it.
I'd like to see some pics of:
The bore now that the piston is out
The valves
The valve seats
The connecting rod journal end with the cap off
A shot of the piston looking at it from the side where the erosion is.
Looks like there is some damage to the skirt on the side of the erosion. May just be wear, but it looks like it had some pretty good "piston slap". I will say, that motor was close to scoring the piston and locking up. Probably didn't just because the piston was so loose in the bore.
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