Re: 2000 40hp mercury; No compression in top cylinder under load.
Hi Chris,
So, what have we got here?
1. Carbon deposits are normal, it's a 2 stroke. However, yours are really dry, indicated an overheat, but we already knew that! When I was tearing down engines on a regular basis I could tell the brand of oil from the amount and type of deposits. The cleanest oil was Quicksilver, and the dirtiest was Valvoline, followed closely by Shell and BP. The deposits are normally 'wetter, oilier'.
2. That is definitely a slipped liner, again because of the overheat, which must have been quite severe to heat the alunimium up that much

.
Recommendations....
1.
Lightly clean up the piston with the damage with a fine file. Don't take too much metal off.
2. The overheat will have softened the rings on
all pistons, replace all rings. Also check for damage on the piston skirts. Make sure they haven't 'grabbed' anywhere.
3. That block is a bin liner. The only way to have a reliable engine is to get a new block. Remember that a new block includes the crankcase cover, they are machined together as a matched pair. I have seen engines that were rebuilt with a non-matched cover and it a disaster in the making.
Other than that, well done on getting this far.... Keep up the good work.
Chris...............