Sounds to me like it is probably well past rebuilding.  Probably only needs a rod, crank, piston, and block. 

I'm having a hard time invisioning how the valves could be hitting the piston, though.

Would be best if you could figure out a way to run it with a single output shaft, then you would be open to use a fake Honda...lots better OHV engine for equal or less money then the flathead BS.