Time to buy a leak down tester......
I've rebuilt one engine before, an air cooled VW, worked out well, but I don't think I want to mess with this one. Ill probably buy a crate engine. They're in the range of about $1700. Not too bad.
I'm hoping it won't have to come to that and maybe I can get by with spending a few hundred instead of a couple grand.
So for now, a leak down and a compression test. I'll repost with results.
The other issue is probably really worn out piston rings???