what about o-ringing the cylinder instead of the head,

The iron OEM sleeve is not always centered in the casting.  We have cut alot of o-ring grooves in LT 500 cylinders.  Sometimes the groove is partially in the iron and partially in the aluminum.  A small crecent of alumimum or iron will break out when machining making the groove too wide on these poorly centered castings.  On the hard running 500s cutting the o-ring in the cylinder can cause some detonation issues.