hmm.
that rusty area is concerning, a bit. its quite possible that you could do a simple hone (with a three-stone hone) and have it come out okay. as long as you get a fine-grade finish with about a 40-deg crosshatch, you'll be fine.
in fact, if it was me, I'd chuck up my hone, squirt some cutting oil in there and have a go. piston-to-cylinder clearance is usually on the order of .002, with a outer limit tolerance of somewhere around .0025, before you need to think about boring the jug. it has also been my experience that - if you're using medium grit stones, it takes a whole lot of swiping the hone back and forth to open the cylinder up even .001.
it may be that those rusty areas are deep enough to be outside the bore limit tolerance, and honing the cylinder out with a ball hone (looks like a really aggressive bottle brush with little balls of abrasive on the bristle ends) with the idea of rubbing the rust off those irregular areas, won't really help you out, since even if they're cleaned up, the piston ring will just pass right by that little depression without sealing, and let more blowby through into the crankcase than it otherwise would.
in other words, the ring will seal above the rusty area where the cylinder wall is contiguous, and below it as well, but as it passes over the rust, combustion gasses will sneak right past the ring.
I'd still have a go with a three-stone hone though. it may clean up okay, won't know until you try.
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The B-3 build log:
http://www.locostusa.com/forums/viewtopic.php?f=36&t=13941 unfortunately, all the pictures were lost in the massive server crash
The beginnings of the Jag Special,
https://www.locostusa.com/forums/viewtopic.php?f=36&t=19012Again, all pictures were lost.
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