Alright, I gave it a shot and it did break free. The washer is shaped like a c-clamp, not sure why, wouldn't this cause leaks?
I cleaned up the cylinder in hot soapy water and gently removed the corrosion at the entry point with a wire cup on dremel. Once clean, I noticed that there seems to be some kinda scratch on the inside where the opening of the C-shaped washer was. Is this thing toast?
I've seen marks like those before when that malleable C-washer is used. The master cylinders varied these parts, don't seem to have rhyme nor reason for 'why'. Last 4 years I've rebuilt 3 of them, and 2 had the C-washer, one was a regular round one (?). They were ALL stuck, just like this one. Once the fluid leaks, it finds friends outside the clean brake chamber, and they feast on the aluminum and corrode it. This makes it swell and discolor, like yours.
The seal area is up inside the tube near those little holes to the reservoir, like Terry was trying to describe above. If there's no scratches up there, all is fine. Make sure to wet the parts with brake fluid when you slide them in, or they will stick and nick themselves from the dryness. While they will still work, it will shorten their lives.
The K0-K2 before 12/71 all had brake reservoir lids labelled "Use J1703 Fluid Only" (among other hostile-sounding words). This became "DOT3 or J1703a" in the 1972 era. Soon that yielded to "DOT3".
The DOT4 type is a semi-synthetic: avoid that or the cups will swell and slowly dissolve, in my experience. It also seems to eat the rubber O-ring in the caliper over time, causing the pad to not retract, and drag and squeal. (These last statements may spark an oil-thread-like argument here, I'm just stating my observations with DOT4 lately, like the past 7 years or so. I'll apologize in advance...).
