Was there any evidence of burned or stuck valves in the cylinders where you had the low compression readings? If so, you've probably found the source of the problem already. The engine might run just fine with nothing but a valve job and a good lower end cleanup. Be VERY cautious with any honing operation, as if even a slight amount of abrasive is left in the cylinders, it will wear out a new ring set in a short time. I did an in-the-frame ring and rod bearing job on a 1960 Rambler flathead six many years ago, just before driving from central California to Tennessee. By the time we arrived in Nashville, the engine was using 3 quarts of oil to every tank of gas, and the oil ring expanders were rubbing the cylinder walls. In 2,500 miles, I had worn out a brand new ring set! The cylinders were washed down several times after the hone job with solvent and clean rags, and then washed again with lacquer thinner. There was still enough hone grit in the cylinders to wear the rings out. Hot, soapy water and a scrub brush is the only way to clean up after a hone job, followed by a pressure wash or at least almost-boiling rinse water, and it's much better if you've got a bare block out on the shop floor while you're doing that.
I'd suggest soaking the cylinders with plenty of penetrating oil, and spin the engine with the starter to see if it frees up. If so, drop the head back on and drive. If the performance doesn't suit you, you're only out the cost of a head gasket set and a little labor time.
Jerry
