A few blocks will crack at the bottom of the cyls-due to residual water in the block during freezing temps. Since it's not a critical area, welding the crack should be fine. You've got another situation going on with the block not being parallel on all the cyl head face areas. Fortunately, it's the water jacket which is short, not the cylinder liner itself. FR has a great idea, build up the surface of the block with some MarineTex and sand it smooth-so that the head will sit parallel on the block. That stuff dries hard as nails and is impervious to water/oil, etc. A little extra gasket sealer in that area would not be a bad idea when you install the head gasket.