By the pics the cylinder needs a hone job at least to remove the rust, and then followed by a measurement and new rings at least.
The reed is nearly gone - the gap on the petals to the seal edge are like 2mm (you will lose low end torque) - clean them out completely and then see if the reeds shut completely - the reed stopper should not be more than 9mm away from the tip of the reed cage.
The engine is a good find - but you need to check the end play on the crank and small end bearing.