My pistons looked like that on my 750 when I pulled them all apart for cleaning.
If it were me looking at that piston. I would try to clean it up and see how it worked before buying a new piston. That's just me though. I'm a cheapskate, and willing to try to clean and fix before purchasing. This sacrifices time, if you have that in abundance. If not just buy it.
If you do in fact have some time to put into it (probably only 3 hours) here's what I would do. Take some 600 grit wet sanding paper, and clean up the piston and the piston chamber in the brake caliper. With the caliper dry (wipe it out with a paper towel) the piston should drop in and out relatively easily while being a snug fit.
Re-assemble, bleed the brakes till they're firm and responsive and determine if the piston retracts successfully when you let go of the brake. Ride the bike down the driveway and see how it feels. If successfull ride it around the block and see how it feels. If you have any binding or brake dragging, you may need to replace the piston. If all is good, ride her like hell.
Best o luck. And please remember that's just what I would do (and have done with more than 2,500 miles of success) with my bike.