Looks like you need to hone the cylinders which is real easy. The pattern is a 60 degree crosshatch (google for it) and use a lite oil with a slow speed drill. As Dave says you need to measure everything including the cylinder to piston clearance especially after the honing. If you have too much clearance well order new cylinders/pistons as a complete set.
Time for you to get out the manual an look at all the specs and measure what you have. I have a set of tools to do that but I am leaving tonight for 2 months. Maybe PM Blair- Axis Team Racing- and he'll come up to help. He went to school to learn how to do all this plus we have done two motor together so he knows type 4's alittle bit.
Check the ring gap and gap the rings to spec after the honing is done and the cylinders are washed and clean.
Then install the pistons without the rings install and no keepers to set the deck ht. I use big washers to clamp down the cylinders, then use a dial indicator set up to check the difference between the top of the piston and the top of the cylinder. Should be IIRC .35-.45 and you add cylinder base shims to set that. Order new shims from Jake to set it after you measure it or if you are lucky use the stock ones supplied in the gasket set you should have already. Check each jug to set them all the same.
Then just install the loaded pistons and the install the cylinders keeping the ring gap offset so they aren't lined up.
What about the heads? Are they rebuilt ? They go on after the p&c's are all on.
While you have the block open, measure the rod side clearance thru the spigots to check that. If thats why off open her up and rebuild the block as its easy to do.
I agree with Andy, clean up that fan, block etc so atleast its nice and clean so we you put it back together you aren't fighting all that grime getting inside the engine.
I think you should have a
so Dave Hunt, Blair and others come up with tools and you assemble it.