@omron
Obvious point is that you either need to change the engine or it needs to be opened up to the crank case (An overhaul).
Now if your pocket allows that much to be spent on this machine, you may go and get a whole new engine; it will cost you about Rs. 20,000 and the package would include EVERY THING except for dynamo, frame, panel and fuel tank. Obviously it would be a real peace of mind. Mechanic guy would charge you about 1,000 for the replacement job and would probably buy your old stuff in about 1500 to 2000.
If you don't have that much or don't want to spend that much on this thing, then go for overhaul. Believe me overhauling is not that complex as it seem to be; you can easily manage if you have a nice friend who is not quite a chatterbox and is rather a good observer and listener 
and who may give you company and a little help for a couple of things that you can't do alone.
My 6500 Chinese did the same thing (needed about half a liter of top-up daily) and I tried an overhaul; managed to get to half way but then stuck somewhere (the long bolt joining engine and dynamo was badly stuck) and had to call my mech.
Now to the point of your interest, the only job that Mechanics do is to disassemble the engine, wash it, send it to Kharad and reassemble. Kharad is the real gem. If you manage to disassemble the engine, just take crank case, piston, connecting rod and crank shaft to a good kharad, he'll take measurements and would write down the size of 50 piston and other stuff for you. You'll buy the stuff, give it back to Kharad and he'll fix everything. then you'll have to reassemble. In my case I replace the head with a new one, which I believe was a good idea.
To check things by yourself (Experts may have different opinion. Below is my personal observation)
Piston and Rings:
open up the head, take the piston to compression stroke and first put your both thumbs on extreme sides of piston try pressing your thumbs one by one, if it has some play, it means it needs replacement; then press the piston, it should have a little friction, an intact one shouldn't move very softly like it is falling down. I believe once you have opened up everything, rings should be replaced in any case (Kharad will fix new rings and piston to place, you don't need to worry).
Crank Shaft:
when everything is opened apart, take the crank shaft and connecting rod and try moving connecting rod left and right, if it has play, then you may need to replace crank shaft. Kharad would also guide you in that and would fit new connecting rod and crank together for you.
Rest is usually fine; just to make sure, read agoodfriend's initial posts and you'll know how to check other stuff like bearings.
What it cost me:
The total cost of overhauling was Rs. 4450 plus 1300 to Mechanic. And in that, I changed Rings, Piston, Connecting rod, Complete Head (including valves, rocker arms, push rods, springs, plate and stuff), tappet cover, crank shaft, cam shaft, seals, silicon e.t.c. All the parts were for 3,900 (everything else was Chinese but Head was Taiwan made for Rs. 2,000). It's now a month and gen is roaring like a charm. 1.5 Ton is like a toy for him. Hope it remains like a toy for him, at least for some time....
Let us know your decision and we'll try telling you everything we know. I also have some pics when I opened mine apart to half way; I'll share if you'll need. Best of luck.
