Forman, the photos are outstanding and conclusive: poor cylinder seal, enough to cause the oil blowby that you found on the piston crown and combustion chamber. Cause of the cylinder wall damage looks like fuel wash, i.e. either too rich in fuel mixture (now or before your rebuild) or overheat. I'd suggest the rich fuel mixture, which causes fuel washing of lubricant from the cylinder. This can happen when compression drops and the engine gets driven still. Low compression makes for poor combustion and rich running—so does operating the engine with the choke stuck on.
A cylinder leak down test before this tear down (see my video and article on that subject) would have shown major compression leakage around the piston rings. There is now no appreciable crosshatch to seat or seal the rings, and oil cannot stand on this cylinder wall without crosshatch.
If this is Nikasil, you may have a long shot for honing. Honing would best be done by an automotive machine shop with a Sunnen or similar power hone that can keep true and make the cylinder round at the same time. The machine shop can determine whether there is enough Nikasil and bore diameter left for honing with the current piston (if this piston is still okay). I see both cylinder glaze and pitting, scoring as well.
On my Honda XR650R, I took the next step and passed on Nikasil. L.A. Sleeve is boring the cylinder and installing a patented alloy iron/moly-chrome cylinder liner at the correct bore size, precisely honed for the new piston size and rings. In my case, I stayed with a cast (OE replacement upgrade) piston at the stock 10:1 compression ratio (plenty, thanks!), quality matching rings and gaskets. I'll likely install a Hot Cams Stage 1 camshaft during my assembly work...Will explain that choice during my assembly work.
This kind of expense may not be what you want to hear. The machine shop measurements and assessment of the cylinder, piston and bore size will help determine your next move. (Please post photos of the piston and rings.)
I sigh when "good used" parts come up online at Craigslist and eBay. "Good" and "used" often become an oxymoron. eBay seems to provide more recourse, Craigslist is a crapshoot in my view, I've done well and not so well on Craigslist. Got lucky with the Honda XR650R; the previous owner truly did not anticipate the damage I discovered. He made equitable recourse, too.
Your cylinder damage could be the result of running the engine with the choke on, too, long before you rode the bike or when it got "borrowed". Regardless, the damage is apparent, there was no possibility for piston ring seal—even 100 miles of riding was too much for this cylinder, piston and rings!
Still would like to pinpoint the aluminum debris source, it could have been embedded in the oiling system from cylinder wear and severe piston damage. A bent rod would have cocked the piston, causing the aluminum piston skirts to wear radically—in a hurry! Do you still have the piston? Would like to see the skirts...Also, you mentioned bent valves. This engine may have been downshifted at a high rpm, floating the valves and causing them to interfere with the piston. This can bend a rod.