it has to be cut precisely so it doesn't obstruct any flow. yours is hanging by 2mm at least im all for DIY othervise!.....
Can you please point precisely where is the problem with the gasket in the picture? I've bought an engine rubber and gasket set that would be used when reassembling, but I'm worried that I can't see the problem you mentioned.
as for how long you can abuse it, few seconds can be tolerated with good oil (710, 800 off road, ipone samurai etc) with at least 2%, if running the oil pump and want to be safer, use 1% premix. should not smoke!
When assembling the new cylinder, be careful to adjust squish properly.to big and its non effective and will knock, to small and it might make the piston kiss the head. anywhere from 0.6 to 0.8mm is good to use.
for warm up, have the water warmed up and radiator hot, and give it the same time before going WOT. i.e. if its 3 minutes of riding to get radiator warm, give it another 3 minutes before WOT.