As you say, Mark, it is an opportunity to become familiar with the OHC Honda engines, which may make it worthwhile overhauling it provided you don't spend much on parts.
Working from the ring gaps alone, the wear is perhaps about as bad as on an ex-contractor pushrod Honda that has been scrapped because it has just started to blow oil smoke. Typically I'd expect to find 0.0020 - 0.0022" of bore wear on a healthy engine to get the results you've got - but there would not be any sign of striations to the bore or piston. Because of this it may be that your engine has a quite different problem from normal wear. The first possibility to consider is that it may have been operating for a long time running extremely rich, which washes the oil film from the cylinder, and is likely to result in bore striations like yours, and a larger than usual amount of bore wear. Alternatively of course it may just have been run for years without an oil change, resulting in a lot of oil contamination. The striations on the piston and bore are characteristic of either lubrication failure or contaminated lubricant. You should know which it was by now, from the condition the oil was in: was it extremely black and filled with swarf, or did it have the nasty acidic smell of oil with petrol in it?
The much higher wear on the second ring than on the top ring is characteristic of Honda ring sets: the top ring is chromed, while the second ring is not only not chromed, it is tapered to act as an oil scraper, resulting in relatively rapid wear until the taper feature wears off it. On the older engines, the oil ring was a one-piece cast iron affair, not chromed, and it wore nearly as quickly as the second ring. In recent years they have had automotive-style oil rings: a pair of chromed, steel-rail rings with an expander/spacer in between. This has given a substantially reduced oil ring wear rate, but made no difference to the wear rate of the second ring.
If you can't find any tendency for the striations on the piston to catch a fingernail dragged around it, I'd say you can re-use it in a 4 stroke like that, but not in a 2 stroke, and not in a customer's engine. However I would want to know the bore size and piston size, compared with standard sizes.
I can't immediately think of a cause of the rich running other than obstructed air cleaner, choke not opening properly, float bowl flooding, or amateur interference with the internal parts of the carburetor.
