So I turned my attention to the piston & cylinder where I had a few options:
1) Buy NOS or at least OEM style replacement piston and cylinder
2) Buy one of the numerous dirt cheap replacement top end kits from China. These cost about $30 shipped for a piston, cylinder, rings, and gaskets. A few bucks more gets you a complete cylinder head.
3) Bore the original cylinder for a NOS oversize piston & rings (which are cheaper and more plentiful than standard ones on ebay)
After striking out at finding a local machine shop able to bore a 63mm cylinder, I fired up the credit card and did both options 1 and 2. I did both for a few reasons. Mainly, even though the cheap kits all proclaim to be compatible with the S65, there are visible differences in the piston design. OEM pistons are tall with a high dome, while the cheap kits have a very short skit and a nearly flat top. I haven't confirmed it yet, but I think the cylinders are shorter as well. Since I couldn't find any evidence online of someone actually using one of these 70cc kits on an S65, I figured for 30 bucks what the hell. At the same time, since I was leery of how compatible the cheap kit would be, I searched for a more OEM style replacement. The closest I got was a 70cc C70 piston and cylinder from DrATV. This was nowhere near $30 cheap (more like $100), but the only NOS S65 cylinders I found were listed for $500 so $130 later I had two different top end kits.
Long story short, neither of the replacement piston & cylinders would work. Mainly, because the lower cylinder on both is too large to fit in the opening of the S65 cases. Sure, I could enlarge the cases but now you're talking about splitting the cases and I didn't want to go deeper than I had to. Also, both piston/cylinder combos were measuring at .004" clearance so I was afraid of repeating the same damage as before.
The other problem was the cylinders. The S65 and the C110 both employed a carb heating system that took hot oil through external pipes from the oil pump, up to the carburetor, and back down to the cylinder where it deposited the oil into the supply feed to the cylinder head. In the end this system was obviously deemed unnecessary as all subsequent models and all of the aftermarket cylinders lack the threaded bungs necessary for this oil system. While it is possible to add this connection to the later style cylinders, I didn't have the necessary machining tools to do it properly. Many owners bypass this carb heat system though as far as I could tell they all do it by installing a very short pipe straight from the oil supply to the cylinder. I could find no instance of someone simply blocking off all of the ports. I didn't want to try this either as this this carb heat system obviously supplies pressurized oil to the cylinder head, and even though I have yet to take a fluid dynamics class I'm pretty sure removing this feed entirely would reduce the flow of oil to the cylinder head. And that's probably not advisable.