The rings in the piston are intact but are seized solid and badly worn as is the piston. Looks like it has had direct contact with side of the cylinder, at the exhaust port, so excessive heat at the exhaust port. Three things I intend to do here. Change the ration of two stroke oil whilst running in from 40:1 to 30-35:1, I have the heat exchanger on the exhaust (which is close to the point that the exhaust meets the head) insulated - I shall remove the insulation and run the heating fan on longer runs until the engine is run in and freed up. The engine cowl is tight to the cylinder which touches in places. I shall attempt to reshape or refabricate a new cowl which shall increase air flow around the cylinder (I could do this in fibre glass using the old one as a mould with some modifications).
There should be a quoted value for the ratio of a given type of two stroke oil. Not all two stroke oils are the same and the differing types have differing carrying oil, if not mineral. The ratio is not optional. It is a given amount, no less, no more. Run it weak, not enough lub. Run it strong, you reduce the amount of burnable charge, and run a lean mixture.
The answer would seem to be to apply a bit of excess fuel. It increases the amount of lub and cools the engine a little by heating the charge.
If the cooling system is that of the original engine, it is unlikely to cool twice the power without some major modification. It is not info I know, but double the power would suggest doubled the air flow of cool air from outside the vehicle, not recycled air from inside the framework.
Its got rather hot, whatever happened. I hate rubbing strokers in. The more care you take in the early miles the longer/better the unit is. But it is a bit tedious, the temptation to use the power is seductive.