Doc, Insanity is a condition of boat ownership. The fact that you can ask yourself "Am I Insane?" leads me to believe that your mind may still be sound.
Your ability to make a rational decision???
Break-in oil ratio -- Old School 25:1 (double oil)
I have heard of some going 30:1 on another thread. 25:1 was good enough for all major outboard manufacturers so 25:1 works for me.
No wide open romps for at least 10 hours and then only for a short time say 20 seconds. Do not let it stay at one RPM for long periods of time. The idea is to let the friction surfaces get accoustomed to one another without creating any super hot spots and possible sticking a piston. When you do get some hours on it that motor needs to spin free. Make sure your not lugging the inline 6 they like lots of RPM on the big end. Not positive but 6600 to 7000 is what I remember.
You must love that motor. How do you propose to clean up the damage to the block in the head area and around the spark plug? It would need to be smooth to prevent predetonation. Looks like some irregularities to the counterweights on the crank. Probably where the rod was shearing the bearing. If it were my money I would take the block and rotating assembly to a good machine shop. They can check the bore for roundness, magnaflux the rods and give suggestions on which way to proceed. They would be my "second opinion" and they typically do it for cheap $$$. I would consider it insurance for $2K you will spend on the rebuild kit. When my 90 Jrude broke a ring the damage was similar to yours but I replaced the head, you don't have that option. How do the reeds look? They get pricey for that motor. Pistons are not cheap.
If I ain't mistaken where the motor bolts to the boat is BIA standard, you may want to take a breather and spend some time looking for a newer powerplant. Or maybe a inline 6 for a powerhead swap as someone suggested earlier.
Been there with a 84 inline 90. That motor really screamed. Good or Bad depending on your perspective. My .02
Best of luck whatever you decide.