Looks like a pretty good candidate so far. I recommend you get some fine sandpaper (400 grit) and a tempered glass tabletop (or similar true flat surface) Lightly sand the head mating surface smooth in case it is warped a little. Go back together with a laminated stock head gasket.
As for flushing the motor, I recommend kerosene if you have it around, mix it with the ATF. Pour it in the cylinder with the piston down and let it slowly creep past the piston and ring to help them free up well. It is a slow process, but it works well.
Let it marinate/soak for a few days and then repeat. Let it sit in the bottom of the engine block; it does wonders for breaking down the old sludge while it is soaking.
As for the valves, they should be removed and cleaned, then lapped into the seats properly.
Do not run it until you get it cleaned out good and put oil in the engine. This is a splash-lubricated engine, so it may take a couple of quick oil changes before you get actual clean oil back out of it. Any good conventional 10W-30 engine oil will do. Do not use synthetic oil though, until it has had a few hours of run time.
