I agree with Tim's comment in Photo Gallery, it has most likely been run with no oil in the fuel. The only other possibilities that occur to me are if it became vastly lean while running and the operator went to full throttle to keep it running for an extended period (if it were anywhere near that lean it couldn't start I believe), or the ignition became retarded and the operator just held the throttle open to keep it running. I don't see either of those latter alternatives as being likely though.
If the cylinder bore is cast iron, it can be honed and fitted with a new oversize piston and rings. If it had a chrome bore it will require a new cylinder as well as piston and rings. If you can get a sensible price on the parts, it seems well worth fixing.
