Advice needed on used crate engine...part II

Honestly, you paid for a good used engine and that's what you got.
I think you got what you paid for.
The wear is not unusual for a used engine, and it sounds like it was over carburated and that explains the cylinder wear and the sludge in the pan.
I would re gasket it, fix the minor problems, and plug it in as is and use it as you intended to.