The rust doesn't look that bad at all to me. I have run engines much worse than that. Since you have it all apart, clean it out a bit, lube it up and slide the crank in and turn it and see if the bearings feel smooth. If they are not gritty, I would put it back together, clean the fuel tank and fire it up. The only gasket you should need is the rear plate gasket if it is broke which I use a thin layer of silicone in place of a lot of the time. The head gasket should be more of a shim and is reusable. If the bearings feel gritty then you might want to replace at this time. A set of bearings from someplace like rcbearings.com should only run about 15.00 or so. I haven't looked them up for that engine yet. The cylinder looks normal to me. I think the dark ring looking mark is the top of the piston stroke.