Thanks for the video, really looking forward forward to more updates!

In air-cooled engines a drop in power is very common as the engine heats up. A drop of 50% indicates to me that the engine was close to seizing up. This could be due to lack of oil circulation or just straight overheating. The hone will not take out or correct a distorted barrel. Unless it is wear in a longitudinal (wear at the top or bottom of barrel. I would be replacing the barrel as well as the head.. if not the whole engine. Using ZX1 in the oil will dramatically reduce the heat generated inside the engine from friction. However, that engine is basically toast.

Loss of power could be a fuel issue. If you have a thermal imaging camera or it temp gun see if the temps change when it loses power. It could be running lean.

Are you running this on propane or petrol? If you're running on LPG maybe your pressure regulator cant keep up. The other point is that the engine running on LPG will be considerably hotter than running on petrol, especially in WOT situation. Maybe that could contribute to blown head gasket. Kepp up the good work, I enyoj your content very much.

Maybe I'm wrong, but sounds like that alu block is done. Don't think they handle overheat like cast iron, wonder did the head expand and pull the bolts hard enough to warp the block lower down. Would a small diesel not be a better fit? Maybe liquid cooled 2cyl in a soundproof box?

Are you using this for a biodigester or a paraglider?