I hate to be jumping in on this so late, but suspect a carbon problem, based on the picture of the piston top, among other things. Your exhaust port looked good, but have you checked the muffler, and especially the spark arrestor screen? If the screen is heavily covered or blocked with carbon a 2 cycle engine will be very difficult or impossible to start, and also generally will have poor power and lowered RPMs if it does start. Before I put any money into it I would check to see if it will run without the muffler, though with it apart now it may be a bit late for that. Before trying to start it check the carb rough adjustments. If it is a Walbro WA or WT carb the rough set is at 1.25 turns open, both high and low speed needles which should get it started if all else is ok.
Hope this may help.