I'm going to give my opinion on this situation based on the for sale thread that can be viewed here.
http://www.bansheehq.com/forums/index.php?showtopic=106924&hl=
Looking at those pictures to me it's totally obvious that the dome and piston are pitted on one side. The cylinder around the exhaust port is a little more than scratched but is shown really well in the pictures.
I agree that his reply to the pitting was not correct. He said it was just moisture, but you also had the pictures to show you what was wrong with it.
I think that the only thing that should be in question is the one piston and dome. Let him send you another used piston and provide you another dome. Since Nate has the domes, he can cut a matching dome. As far as the piston goes, as long as he sends you one in damn near new condition I feel that it would make it right. Don't expect him to buy you a brand new piston, because you didnt buy new stuff from the beginning. If he can't send you a piston thats damn near new with no damage then I think he should pay for a new piston or at least a large portion of it.
The cylinders were known that they need nikasil, so thats not an issue.
I'm not friends with either side and I've never dealt with utley.
I know he sent Perry a motor that has the sprocket nut welded onto the shaft, but he sent him a new tranny shaft.