I too am against the trouble of gelcoating, buff and polish.
The impeller probably can't be saved with that much grinder damage, wow someone was a hack.
The head has been off already indicated by the head bolt paint missing.
The aftermarket inline fuel filter could have been the cause of the...
Well the oil tank is only about 12" above the pump so with pressure being 2.31' per psi you would only need 0.5 psi holding from the check valves from draining the tank into the crankcase. Now if the check valve on the tank vent doesn't work then you could build enough tank pressure to overcome...
The oil pumps don't hold oil the check valves do. On a 580/650/720 they are on the pump outlet banjo fitting and on the 787/951 they are on the intake manifold fittings.
How did you "lower" the pop-off?
I suggest replacing the ON/OFF valve as cleaning them usually causes an air leak. IF nothing else pressure and vacuum test them for being airtight.
You don't add oil to a 2-stroke when checking compression, as you will get false readings. The only thing that controls compression on a 2-stroke is te rings so if it is low it is the rings and/or piston and only step next is to pull the head and cylinder.