Ehh... HDs leak more (I know. These aren't supposed to leak at all). Put a piddle pan under it when it's in your garage, ride it the summer, and tear it apart over the winter. Get your kicks now!
Might I suggest.....
"Mailman’s XS2. A (not so) sympathetic restoration."
there was no orange sealant in 72's and I've never seen it in any xs650 motor of any year unless billy bob has been goobering. Better pull the clutch cover and the oil pipe and orifice in the passage that runs to the head. I'm just assuming sump and filters are already on the list.
That motor does look REALLY good inside.
... I'm not sure exactly when Yamaha came out with their gray colored Yamabond. Maybe 2M can comment on what he's found on his XS1 stuff.
Ya there is silicon there but i have seen worse also. The red stuff is a sign of a novice doing his first engine rebuild. Probably not to much to worry about. Yamabond has been around for a long time. I used Loctite 518 anorobic sealant on my last set of Z1 cases. I also use Hylomar sealant on the gaskets.
No need to check the compression NOW!!
Scott
Great pics, Bob. Kinda rare to get pics of clean, low-time, unmolested (somewhat) early originals. Saved some for my records. We could also use some pics of the XS2 cam tensioner stuff, as installed. The manuals have the tensioner parts pics fouled-up.
You have 256 pistons, which will use matching 256 rings. 1.5mm top ring.
http://www.xs650.com/threads/cruzinimage-rings-for-xs2.47990/