Slant 6 Vibration
Not necessarily bad..... so not time to panic. It could be some crud or something that got in there at one time and just got scrubbed up and down the bore. Or, the engine got a bit too hot, the piston expanded and momentarily scrubbed the cylinder wall.
If it got bad enough, it might have scuffed the piston; that is indeed a bad piston. (But I normally see a lot worse on the cylinder wall in that case. And you would have felt the engine slow or knock a bit or jerk a bit when that happened.) Run the other pistons down in their bores and see if you see similar in some others. Let us know what you see.
My next step would be to measure the bore diameters. Then have the head checked for warpage and any bad valves or seats in #2. (That 'pssss' that you heard really makes me think valve.) If the head is all good, THEN it is time to suspect that ring set or piston, and pull it out, or pull the whole bottom end.
Buuuuut... maybe 1st decide if you want to keep this engine. Do you want to get it fully up to snuff, or just get it running again? Or do the V8 thing? If you really are contemplating a turbo, then you don't want to do that on an unknown block and pistons.... and bearings.... and oil pump.... etc.
BTW, that plugged hose is either one of the heater core hoses, or the short hose to the head, which is the bypass hose. Neither being blocked will 100% block flow to the head; the bypass just allows some modest amount of coolant to flow around while the engine is heating up.
does increasing the compression by milling the head doom the lower end as long as there's no major known problems?
Not sure I follow the question here.... did spell-checker change that word 'doom'?