OK, Here's the damage...
Rust on the crank, intermediate shaft (felt that turning the oil pump), and in the first cylinder. All the bearings look OK.
While I am bummed, I'm also pretty relieved and glad I finally pulled it all apart.
Seems like maybe I should pull the crank and rehone #1, but I'm leaning towards touch up the inside of #1 from beneath as I've done above, clean off some of the surface rust, rinse into a pan with some solvent (not wd40 this time, maybe kerosene?), and put it back together and run it.
I wasn't brave enough to go for the 1.9 gasket. When I end up pulling this one off (fingers crossed for a while) I'll add the extra coolant ports to the head, and have it resurfaced at a good shop, and try the 1.9 then... with the Giles pump and advanced cam of course :wink:
I'll see if I can figure out how to post pics on a following post...
Always open to opinions and helpful advice, thanks again!