Well, could have been so many things….Doesn’t look like the block was overheated though, not discolored. You might have a look at the plug threads, perhaps someone put some thread insert in there that might have allowed the plug to heat up too much. What size prop is on the engine? Perhaps someone had it overpropped and was lugging the engine at high RPMs. Not enough oil/lousy oil is always a possibility… Perhaps someone had some hot plugs in there trying to make it idle better. The engine is in such nice shape otherwise, looks like the gearcase was replaced though, surely was only used in fresh water.
Perhaps the engine was partially overheated, worn pump, no thermostat/poppet valve.
Check the mag plate stops to make sure nothing is broken that might be allowing it to over advance.
Finally, keep in mind that those compression relief valves might be messed up causing the low reading in one cylinder, even though the cylinder is clearly scored, and there is aluminum transfer…Kinda looks like detonation/preignition damage, but who knows….

OK, well it looks like the piston coked up, causing the stuck rings, leading to the melt down… The rings look properly aligned, so I don’t thing the alignment pin for the top set of rings came out…
Perhaps they were using crappy oil…
Hone the cylinder, then remeasure…It won’t be perfect, but will work just fine I’m sure…Don’t “over hone” it to get rid of all the little score marks, use a ball hone to finish up, it will get rid of any little problems and chamfer the ports.
Again, it depends on how perfect you want it…

I say the ring locating dowel pin came out. Seen it too many times. Somewhere in the then-future years, a change in the pin was made for that reason.