Mike M.
I consulted a machinist for a very similar problem with the original motor in my 129. PO broke a rod, and there were similar sized chunks out of the piston skirt and bottom of the cylinder. They tried to patch it with a new rod, but it smoked worse than a Rumley when I test fired it before tearing it down. It had a brand new rod, crank was worn .008-.014 under, cylinder had about .008 taper. I considered having the machine work done, but to make a long story short, I found a much more serviceable block for $25 that needed only a light honing and valve lapping, and had a good crank, rod, and piston, though it needed a camshaft. I did salvage the external parts, such as the carb, S/G, flywheel, sheet metal and head for the new block, and have a usable cam for a future project.
While he said that he couldn't do anything with the crank, as long as the missing chunk didn't reach as high as the piston pin, you were probably OK with the block. As to whether the block is worth saving or not, a lot depends on the condition of the rest of the internal engine parts. You might be better off starting with another motor, if the price and condition is right. Besides the bore, my biggest concern would be the crank. I would clean up the aluminum cladding on the crank and mike it out. Crank journals tend to wear egg-shaped, so mike it along several axis, and at several points on the journal. The only standard undersize rod is a .010, if you are worn past that you will either need another crank, or you can grind it .020 under, and get a specially made rod with the proper undersize Clevite bearing inserts. Such rods are available from some of the vendors that supply performance parts for the pullers, but are expensive.
If the crank is grindable to .010, then you are probably looking at about $60 for machine work on the crank, another $50 or so for the bore, and $40 for valve work if it needs it, plus $75-120 for a Stens rebuild kit. Don't forget to check the cam as well, particularly the lobe for the breaker points. If you need a new crank, figure on close to $200 for a new one, and $50-$75 for a used one which may or may not need to be ground. I would stay away from any used crank on Ebay which the seller does not show a good picture of the journals, nor provides measurements of the journals. I see a lot of guys trying to pass off junk as serviceable cranks.