Yes, what you've found is pretty typical for one of these. Most weren't cared for like they should have been. Oil changes were not frequent enough, and filter cleanings even less so. Looks like your sump plate still has the original gasket bonded to it with Yamabond from the factory. I run into lots of them like that. Several applications of paint stripper will be needed to get that off without a struggle. It wouldn't surprise me if the drain plug seal rings are the originals too, mashed so flat and worn out they no longer help much. Because of that, you often find the drain plugs so tight they're difficult to remove. There's 2 by the way, and you should remove both. Most of the oil will come out the first one but a couple more ounces will come out the second.
Yes, save that old sump filter and patch it. I agree, just replace the little side filter if it's torn. That's not very common and you shouldn't have to worry about it happening again. Yes, do several quick oil changes and filter cleanings. That will flush the motor for you, but it could take some time. It was several thousand miles before my filters started coming out relatively clean. This is a pretty crude old motor and design. A few metal chips in the filters almost seems to be the norm. I think the commonly grinding starter contributes to this. Here's my side filter from my last oil change. relatively clean but still a few little bits of junk. I've come to accept this as being the norm .....
As far as oil goes, for your quick flushings, I wouldn't use anything fancy. I'd recommend the Walmart in-house brand, Super Tech. You can get it in 5 quart jugs. The 650 takes a bit over 2 quarts per change so a jug will give you two changes .....