You can do the spark plug hole yourself with the heli coil or this
http://www2.cip1.com/SearchResults.asp?Search=C13-4013&Search2.x=0&Search2.y=0&Search2=Search you also buy the inserts from cip1 May be a good tool for the club to buy.
Don't worry about that little hole, in a bigger engine you would see the whole stud hole. The cylinder don't seat there.
I would put some valve grinding compound on a cylinder and lap it into the head for a better seat, it don't look like it has bad blow by.
It ran good before so,
Get a set of swivel foot adjusting screws and rocker shims. Clean up your parts, fix spark plug hole, Lap in cylinders, put it back together with new gaskets, put on a stock carb setup and test run on floor. If it runs ok put your old carb setup on and test run on floor, if they run ok your a happy camper.
Find a road where you can run 55 to 60 MPH for as long as you can, turn the engine off and hold in on the clutch and pull to the side of the road, after 10 min pull two plugs one on each side and see if they are burning a brown color. if they are lean increase jet size, if rich decrease jet size. (when you get home) Most people are to lazy to do this so they never know how the engine is really running.
You can use my bell housing and starter to run the engine on the floor.