what to do, got hot, now compression issue, 25hp

I just acquired a 88 25 that got hot last fall and quit running. The guy that had it showed it to me after it happened and it seemed like the compression bump was not right. I told him to do a compression check and view the cyl's with a borescope we had at work.
Well he ended up just pulling the head off to check the condition of the cyl walls without doing a C test first. I was not there when he took it apart.
The Cyl and pistons look good with the exception of a couple of scrapes/rubs on the bottom cyl that are so small that you can barley feel them and a finger nail wont catch on the edge. At this point he gave up and sold me the project.
I have checked the head and it appears to be flat and not cracked or damaged in any way except you can tell it got plenty hot. The head gasket did not have a smoking gun but there is one small 1/8 area that looked like it was possibly corroded/breached on the cyl sealing ring. The bottom piece of tubing that is in the cooling jacket is charred and that is in the same area of the questionable area of the head jacket.
My plan is to clean the head and block then re-install head with old gasket with a little silicone on the sealing ring to do a compression check.
Is there anything I am missing? What would you check? What are those pieces of tubing for?
Thanks...Rick

Those pieces of tubing direct the water flow around the heads in a certain path. They are needed, and they need to be in the right locations!! You can see the inside of the cyls, but you can't see the sides of the pistons. I've got a motor that overheated, and the cyl looks good. BUT, the sides of the piston are badly scored, and aren't visible unless the exhaust is removed! So, you really don't know what you've got. You can put it together the way you said to do the comp check, but I'd want to do a more thorough check before running it. BTW, why did it get so hot??

I did not tear into the lwr unit yet. That will be tomorrows project I hope it is just the impeller.
It looks the head has been worked on before. After cleaning it up I noticed that it has some fairly deep scratches from a metal scraper that may have had some carbon leaking by, hard to tell if it was torqued correctly since I didnt take it apart. I plan to try and clean up the scratches by covering a flat plate with emery and sanding the head in a figure 8 pattern.
So I should take the covers of both sides of the engine to view the pistons, do the pistons actually touch the cyl walls or just the rings?

In theory, the pistons don't touch, they run on an oil film. But, when things get hot, that goes out the window. Me, I'd pull the covers, and have a look. It's only gonna cost you a couple of gaskets. Good plan for the head. Best of luck, I hope there's no real damage. Don't forget about the rubber water deflectors in the block. They're needed for proper cooling.

thanks for the guidance, my investigation continues...

update. I removed the exhaust cover and have attached pics of the lwr cyl and piston. both the piston and cyl have light scrapes, you can see them but it is hard to tell by feel that they are there so I would guess they are .005 or less. I had to do a lot of resurfacing of the head to get it flat so I think the head warped which explains the original compression loss. After resurfacing the head I temp re-installed it with the old gasket with some gasket sealer on the sealing ring. I got 129 on the top and 122 on the bottom cyl when I did the C check. The rings seemed to have more spring and bounce on the bottom piston then the top? Plan now is to find new gaskets and bolt back together unless you all think that with the scouring that it is a grenade ready to go off. BTW the impeller is toast, all the blades are gone. TKS

It looks like it is 2 to 0 for the motor is no longer usable with out a rebuild. I searched all day for used motors but drew blanks. The compression check went OK with no weird noises so I don't think the piston is hitting. If I cant find a replacement in the next couple of days I may have to throw some gaskets and a impeller at it and give it a shot. Thanks for your opinions.

It will run but will not idle well.---------Very common block for many years.

I got it started and it seems to run well on the Ears. Hopefully I can load test in in a couple of days.
I am a happy camper... Thanks for the help