1. What causes this kind of pitting on the piston face? 2. Should bearings line up (sorry for the blurry pic)?
1, water corrosion. 2, not always. So long as they are located properly in the 'tang' it should not be a problem.
That piston looks like something got into the bore and started bouncing around. Spark plug electrode perhaps? A broken piece of valve? Who knows.
I think Murdo nailed it. The top 20mm of the bore looks like it has been eaten away. I'm guessing the PO might have left this engine out in the weather and water has found its way in their. There was no spark plug in the head, so who knows for sure. I'm guessing this is junk and the bore is too? This is a VT250F engine and I don't think you can bore these out. I might try and take a pic of the bore and post it to see what you guys think. Thanks
Have seen enough aluminium corrosion to last me several lifetimes when I worked on aeroplanes back in late 1970's to '80's.