I now have also magnified the pic of the gouge and it appears that it was definately there before the honing-

also as I said before about the quality of the hone job--sucks even more after viewing it many times amplified.

You need a different block machined to fit your parts done by a shop that knows how, has the proper equipment, and knowledge/care about assembly------

Its these kind of shops that make it reasonable to go the crate engine route.