Your description indicates that it is running in a lean condition. Try giving it a small bit of Choke. If that cures it, then you need a carb /cleanout/rebuild, perhaps opening up the main jet beneath the Emulsion Tube a tiny bit. Remove hose at filter and Run some Carb Cleaner directly into...
Don't overthink this. Run it for 30 minutes and note any changes. Clear Crankcase vent tube. Oil at correct level?
Ring Dia appears correct. 0.004" per inch of bore is nominal. Did you stagger the ring ends 120°? They must NOT be aligned. Re torque head bolts when Cold. Not worth...
I am not familiar with this engine. Is it Liquid cooled? If not, perhaps you have some water in the fuel. Do a compression check or Pressure test the Crankcase.
Shops have NOT relined Brake shoes or Clutch discs in over 60 years!. Buy some rivets from perhaps a shoe repair place or just use countersunk pop rivets. You could try crazy glue. Clamp pieces in vise after application.
Since you don't know enough about Diesel or other engines (they don't have a Carb) best to buy one if you must have a Diesel or use what you have. Oversize Rings??????????? uh no.