ORIGINAL: Motorboy
Good pics..

There are no fault with bearing in fronthouse (aluminium bearing), the marks are honing marks to fit the crankshaft, a little sloppy bearing are nothing to be worried so long the crank case compression are good, castor oil will help to keep tight against air leakage in crank case. I doubt the engine are a ABC engine as i can see the engine are a old ''Iron'' engine since the pic are showing the steel sleeve and cast iron piston. Use pure castor oil between 20% and 25% in fuel (syntetic oil will kill your engine in a short time). There are the FAI fuel available, it has 20% castor oil and 80% methanol to run your Fox engine.
Hope we see your engine are running in Youtube after you has fixed your engine
I'm quite familiar with how engines are built - ie: honing the cylinders/bearing races to give the surfaces something for the oil to grab onto. When I reassemble this engine, I was going to use straight castor oil as assembly lube. I will build a stand to run both engines I have as the .65 is brand new and hasn't seen a drop of fuel. I will tear that engine down and clean it and assemble it in the same fashion as the .40 using castor oil. You must have a typo with the "80% nitro" as I've been told 5-10% nitro and 20-22% oil is a good realm to be in. (It seems to be well known to not use any synthetic oil and castor only in Aircraft engines with "plain" bearings)
Is it possible to still get Piston and Sleeve sets for this old Fox .40? If so, are they the same type of construction or do they have the option for ABC sleeve & aluminum piston? Are there advantages to the ABC over the Iron/Steel? I am not real familiar with the Aircraft RC realm as I've been a ground-based smallblock and big block ABC engine guy for the past 12-13 years. I'll post pics of my "Kamakaze" airboat build that I'm working on to put my k&b .65 on.
Thanks to everyone that has posted! I really appreciate it.