Not lack of oil or clearance....my bet is honing debris from block not cleaned properly. The damage is at intake and exhaust port and can clearly see something enter cylinder at transfer port on piston..whats the cylinder roof look like?
Should not be any oil at that fitting as that is fuel from VST. Your fix is dangerous!!! If you have oil the cap on oil tank is not venting and has pushed oil thru VRO pump into fuel system. You need a new VRO/OMS pump and oil cap/
You aint gotta send it to Florida, Jason has done quite a few blocks for members on here...send it to :
Jay’s Block Shop
3015 McMinnville Hwy.
Sparta, TN. 38583
Contact Jason White, 931-808-0814
Tell him Alan sent ya....
For what Merc whats for a new one($750) I myself would carry it to a starter rebuilder have fixed or search some web pages that carry Cummins starters and match it up.