You won't need to pull the engine out to look at the flywheel and woodruff key.
Loosen the two 13mm bolts ON TOP of the two front motor mounts and NOT the two bottom bolts that hold down the motor mount on top of the shims.
Slightly lift up the motor and place a piece of 2"x4" wooden block under the front of the motor to keep it elevated. At this point. You can take off the 10mm bolts(M6?) and use a wide tipped screwdriver to pry the stator cover off and ¡VIOLA! The flywheel and woodruff key are now exposed and can be inspected. You don't have to remove the flywheel to inspect the woodruff key. Both components are just behind the stator cover!
You can check the condition of the woodruff key, flywheel and timing hole to magneto cup. The magneto cup has a piece of flat metal on it. The edge of one of these flat pieces of metal should be placed near the punch mark(looks like a dot in the flywheel) for proper timing.
Moving on...if you removed the rotary valve cover. Did the rotary valve come off with the cover? If so, you'll need to re-time the valve or serious back firing will occur and the engine will NEVER start.
As far as the condition inside from the pictures...they look okay to me.
There is some light scraping on the Case where the rotary valve spins on. I don't know if that's an issue or not. But I think all looks good inside from the pictures.
If the valve and cover are still off. Can you grab the rotary shaft gear and turn it left and right without it spinning 360*?