Burning oil

WOW! You're coworker is a real piece of work.
1. That hole in the case is clearly caused by a broken piston.
2. Although there is something wrong with your piston measuring skills, that piston is still a size or 2 smaller than the bore.
3. If your coworker works with machinery, you should not be working around him.
4. I hope you didn't pay him a lot of money for that mess.
5. You need the crank rebuilt and a proper size piston fitted to the cylinder(probably including bore and hone).
6. Step 5 needs to be done by a professional with experience in building 2 strokes.
7. After all that, if you don't complete the job with a leak test, you will be right back in the same mess again.
 
Update-
Tore the engine down, couldn't find an affordable case half, so I had mine welded and then machined it back to fit . Ordered a new crank and bearings and rebuilt the bottom end. Picked up a new stock cylinder and piston for the top end, leak down tested it with no leaks!
I finally got everything back together tonight and it started on the 3rd kick and ran well, I haven't tried riding it yet. Just ran it thru a heat cycle tonight. It was pretty smokey but I didn't lose any oil and it seemed to be getting less smokey towards the end. Hopefully tomorrow night I will get to see how it rides after another heat cycle. Thanks for the video help ken conners
 
did you......

run it long enuf to blow out all the excess that may have been laying in the bottom end, pipe and silencer ?

fill it with 650ml of trans oil, check the level in the sight glass and did it use any of that up ?

use yamabond between the sleeve (what the inner part of the seal rides on) and crank
yamabond can seal that sleeve to the crank if it's worn

How long would it take to blow out old oil?
I went back in and put honda bond 4 on collar today and mine was still smoking hard