Yes you can sleeve a stock cylinder and run 68mm pistons for a 392 with stock stroke crank. A 4mil on 65.5mm pistons would give you a 391. Lots of other combinations available to get in the neighborhood of 392. Lots of people run big carbs on stock cylinders for more top end.
I don't know about the Il market but $1200 for the whole bike sounds like a deal for someone. In Southern CA in that condition (assuming it runs and titled) would bring $1700-2000 pretty easily. Knock about $500 off for no title and another $500 if it doesn't run.