Good find for $200. Let's see if we can help you out with some of your questions. Since you have to pull the engine out for frame repair & rebuild, pull the cylinder off & mic the bore. One thing i've learned when buying an old project is not to take the sellers word as gold. If the bore is over 88.5 mm, you might want to consider a new sleeve unless you want to start getting into custom parts. Since you might be looking into a new sleeve job, I would recomend getting the rear ears on the cylinder reinforced before the new sleeve is installed Any of the builders here on the site would be able to help you out with this procedure. Also send them the cylinder head so that the squish can be adjusted correctly.
This brings us to the bottom end. Check for up & down bearing movement from the connecting rod & crankshaft. From what you described, I would do a complete tear down. Have the case halves machined for bearing inserts. I would recomend sending the complete transmission out to get rebuilt. My personal preference is to have W-C-R in Gorgia do the pro mod package to the trans. This includes back cutting & deburring the gears, cryogenic treatment for strength, & micro polishing. Then put everything back together with brand new gaskets & seals.
As far as the carb goes, you can't go wrong with a Mikuni. The stock 38mm carb can also be bored out to 41+mm. The PWK is a good carb but can only be taper bored rather than through bored. You may also want to look into the Mikuni VM-44 carb. However going to this carb will require carb intake boot & air filter intake funnel modifications.
For the lower rail on your frame, unless you are building a dedicated light weight drag bike, I would cut it out & replace the mangled piece. Also, if you think you may be doing anything other than drag racing or mild duning, we would recomend getting your frame gusseted before you send it out to get powder coated. When you get it back from the powder coater, be sure to sand down to bare metal the areas where the engine & coil mount to ensure a good electrical ground.
The Paul Turner pipe is a good all around pipe but there are way better ones out there. Take your time & ask questions to the members here about their pipes & decide what workes for you.
One last thing. POST UP PICTURES!!! WE LIKE PICTURES!!!