In the 2nd batch of cylinder pics, 3rd one down, doc7... looks like a couple of deep rust holes where the rings were rusted to the cylinder walls before the first rebuild....looks to me there is your blow by and oil ring leak.
There was also visible scoring down the other cylinders walls that will lower the compression . Hone could help some of that usually or it could make it worse in this case, as it seems that the cylinders have been heavily honed once before.
But those rust pits make me wonder if there is enough meat left to over bore , then there is machine shop cost, new pistons and rings. The 650 has never really been in high demand and it's resale value will reflect that...so the question becomes how much do you want to spend on this machine?
I would be on the look out for some jugs to replace them. Sure it'll still run the way it is and probably make a fun bar hopper for a while , but if it's doggin' performance is already bothering you and you're already up to your elbows in it, why not see if there are better jugs out there , hone them and install new rings? A complete gasket set will have all the Orings , base and head gaskets, and valve seals and all the rest of the top end seals that you'll need to button it up . And will come with some extra case gaskets that you'll be wanting later. Just my 2 cents. It'll be fun no matter what you do.
