Well, it's true that on the Four Mix engines, total crankcase, (and valve cover, cam cover, etc.), sealing is a must, as they operate like a two stroke, with the air/fuel entering the crankcase. They tend to run a bit hot in their intended operation, and seals, valves, and carbon can be a problem. However, we can provide for better cooling and richer operation in our models. As far as overhauling the engine, I always completely rebuild any engines I am going to use for myself or sell. It is just not worth the problems one can encounter with a less than fresh engine on our models in my way of thinking.
I also convert ALL engines for my personal use to electronic ignition. This is for the many advantages of CDI ignition, including much less weight, more power, easier starting, etc. etc. With the ignition price now down in the 50 dollar range, it is rather a "No Brainer" for me. You mentioned milling and use of a lathe. You should be able to make a prop hub easily. For expedience, I often cut the center out of the flywheel, and then make an adjustable slip ring to go around that with the magnet in it. Then you can just make a much easier prop hub that just screws onto the crankshaft against that mag center section. Slip rings like that are also available to buy fairly cheap, so you could go that way and save a little lathe work.
Good luck and have fun, they are neat engines. If you look at my Youtube video, note that the muffler I installed on that engine was completely open; no baffles and I left off the deflector on the exit so that it was almost like no muffler at all. On my personal 36cc Four Mix, I just use an open length of copper pipe. Neat sound!
(Stihl 32cc Four Mix converted for customer.)
My personal Stihl Four Mix 36cc ignition sensor detail:
AV8TOR