I started cleaning the jugs today, what a tedious nightmare scraping off the lower gasket is. Brought it down to Pic 2 and quit for now. Used so much elbow grease, feels like I'm getting a tennis elbow. Any tips on getting the last really burnt in bits off without hurting anything?
It's not unusual for me to 'spend' 2 or 3 razor blades on a well-cooked bottom side like that. I sometimes soak the whole cylinder set in gasoline (until it evaporates away!) with some Marvel Mystery Oil mixed in, that seems to soften the paper up. There are also paint-on gasket softeners at auto parts stores that will help with this part. It can be tedious, especially if the gasket is OEM, now 40 years old, and they were impregnated with an excellent sealant.
I've also used a propane torch: heating up the gasket until it starts to smoke will reactivate the old sealant and make it tacky-er for a minute or so, which helps. When it cools again, it glues tight! That made them very dry: I wish the equivalent gaskets were still around today.
Pic 1 shows the top side, as I was cleaning I noticed that there is a rim of carbon/soot deposited at the edge. Is this normal? I wan't to work on getting the paint off of this thing too, so is it ok or stupid to try and remove the jugs?
The carbon on the top deck is an outline of the metal ring in the head gasket. Often, the head gaskets are not an exact match to the bores, because the stock gasket has to fit up to +1.0mm oversize pistons, too. Once in a while I've seen where someone goofed and used, say, an 836cc gasket on a stock cylinder bore or an 811/812cc set: this makes a 65mm size carbon ring that can cause preignition (ping), in real bad cases.
The head: it does look like someone has both milled it before, and 'hemi-ed' it before. That was the correct thing to do, at the time. If it has a bent valve, I'd suggest the following steps, as this would be my 'checklist' if I had it here:
1. Take the engine's bottom end apart (this doesn't imply you haven't, it's just my method), and check for the rounded gear dogs (and slots) on the C2-C5 gears. These are the first 2 gears that are by the removable bearing on the left side of the engine: the C2 has to come out before the countershaft can be removed. Reason: if the dogs and slots here are worn, it likely caused a missed 1-2 shift, which may have been the incident that caused the other damage (pretty common). In almost every engine I have received to fix a bent valve, these gears were worn like this, and needed to be fixed up. APE (Big Jay and Company) does a wonderful job of it.
2. Replace the cam chain and tensioner hardware (rollers, etc.) as they received a mighty snap when the engine stopped so suddenly that day. They are very likely damaged from that event.
3. Check the rod bearings under the bent valves. They might have been hammered oval by the event. You can Plastigage them in 2 different places, 90 degrees apart, to "see" the shape - one spot will show larger clearance than the other, usually by about .0004" or so. New bearing shells fix this one back up.
4. Replace the valve guide(s) where the bent valves showed up. They are cracked (or will be soon), bet on it. The cast iron/Stellite in the pre-1974 heads was hard as nails and brittle as glass. In most instances, there will be a chip on the guide at the port side, usually toward the center of the head, from the event. This shows where the crack starts, has to be out of the head to see it all.
5. If you want to just replace the guide(s) where the event(s) happened, this is OK if the others are not worn out. This was the standard Honda shop repair, back in the day. It's more common today to replace all the guides simply because so many of these bikes have a zillion miles on them, and they are worn - and, the bronze guides we can get today put up much better with the ethanol-laced fuels we suffer. I keep some stock Honda iron guides for those situations: Honda still sells them, and they are pre-sized 98% of the time so you can just install them and lap in the new valve. The only caveat: once in a while the hole where the guide fits may have been tweaked a bit out of alignment from the impact event. In this case, a new valve seat must be cut, as the new angle will not allow the valve to seat. I've even seen where someone used too big a hammer to remove the old guide (instead of heat & cold finesse) and this tweaked the angle, too. Don't do that...