First let me say "congratulations" for diving in, gettin' dirty, and crackin' open your first motor. A manual, some patience, and some willingness to learn by mistakes (not that you will make any) is all that's required. Oh, and some tools

Diagnosing an engine from pictures is next to impossible but I can say "Yep, that looks like the inside of a 40,000 mile engine". Can probably give you some ideas of what to look for if you give a detailed description of problems the motor had when it was running. I've only done 750 motors but there are quite a few skilled 550 mechanics on this site.
My first top end job was much the same as yours. Questionable motor on my parts bike. I took it apart and put it back together adding just a new gasket set. I gained experience, got 20,000 miles, and only spent $65 on gaskets and $35 on Helicoils. The motor finally failed completely and I gained experience from that. I say do your first engine "on the cheap", if it doesn't work out then go to plan "B"(swap it with another).
Anyway, no real engine advice here. Just wanted to give you some encouragement and a slap on the back
