[Vwdiesel] Is my block salvageable?

[Bart Wineland]

I sure would appreciate some opinions on weather or not I should pursue
rebuilding my 1.6 NA hydraulic engine. Long story short when I bought the
car I knew it would need a rebuild or replacement engine. I did find a
rebuilt engine that so far is serving me very well. My hope is to rebuild
the old one myself for a spare. I guess my original problem is somewhat
uncommon. The precombustion plug in #1 came out of its seat and raised heck
with the piston and I am afraid worse yet the top edge of the cylinder.
http://merlin.alleg.edu/employee/b/bwinelan/diesel/vw%20cylinder1.JPG
http://merlin.alleg.edu/employee/b/bwinelan/diesel/vw%20head.JPG
You can see the top of the cylinder wall has a bit of a depression hammered
into it and I can fell a slight groove in the cylinder wall where the
piston was beat up and rubbed the wall. My question is with the high
compression will a new head gasket be able to hold with the slight lip that
is beat into the top of the cylinder wall?  I have found a replacement
hydraulic head that I think is good but really don't want to go on until I
have some idea if it is a waste of $ and time.

Thanks for any advice you can offer,

Bart