I am a fat noob, but I went ahead and re-built my engine ... well, I am in the process of rebuilding it.
Here is what I found: There were no gaskets on the back plate or on the head of the engine. I would imagine that would significantly effect compression. I have no clue if this guy was actually running the engine like this, or what, but it seems kind of silly.
From looking at the piston, it is definitely catching at the top. Here are some pictures:
As you can see in the first picture, it is sticking at the top, and actually pushing the sleeve out. That is definitely what was causing the issue. If I hold the sleeve in with my hand, I can feel the piston sort of snap/jerk back and forth when it hits the top, and it is very apparent looking at the rod that is pushing the piston. I would assume there is some heating and cooling wear or damage to the piston and/or sleeve where there is now a narrower channel for the piston to travel through ... as it definitely isn't catching on anything else. This is my first time with nitro, and my first time disassembling an engine, it has been quite a learning experience

And the second day at that!
I am not too happy about the engine not running , but I am assuming some of my carb no-intaking-gas problems are due to the lack of gaskets? Overall, it has been a great learning experience, as I have no clue how these mini engineering marvels work
The larger engine head, fly-wheel and racing clutch came with the engine, which is one reason I am not too disappointed with scoring the whole package for 54 bucks (shipped). So I have no clue where he got that fly-wheel, and I didn't see any markings on it, but I will have a closer look and let you know.
As for the body, it came with the stock one, I just haven't painted it yet. I am going to run to the hobby shop later this week and get some paint and stuff for that. Though, it is snowing outside now, so it might have to wait :P
I am at a crossroads and need to decide if this engine is worth fixing, or if I should just go for a new engine. Any insight on that would be great. I also need to find some washers that would work for the wheels, though my hobby shop will probably have some that would work. I am turning in for the night though, will be on the forums tomorrow at work, see ya then