I don't know, to me it looks like a used engine. I think your expectations might be a little high for a $400-$500 engine buy. I have yet to pull a used engine apart and find a tight timing chain. The oil pan indicates maintance was probably lacking. That could also be the reason for the cyclinder wear.
I think it's possible the motor could run fine in in current condition if no serious scrapes in the cylinder walls. How do the combustion chambers and plugs look?