Bobber,
Not saying your don't need a rebuild, but from the one pic I'm not sure you have enough evidence saying you do. Tough to tell from the pic, but the block surface doesn't look eroded in the area of concern. What did the corresponding surface look like on the head? What did the head gasket look like? Is it copper or composition? I'd at least check flatness on both the block and head surfaces with a machinist ruler (or anything you know is straight and flat). You can use a flashlight shined on the backside of the ruler to see any curvature of the block or head surfaces and then measure with a feeler gauge.
I'm only saying this because the pistons and valves look pretty good. It may be that only the head is warped or the gasket was a cheapo and came apart. Can't see the bores in the pic........so can't comment on those. Were all the head bolts tight when you disassembled?
Again, not trying to get your hopes up, but I'd look at more than just that pic to conclude the engine needs a going thru. Just my 2 cents.
regards,
bob