Underpowered Husky 394xp - New Cylinder??

I am digging in to an old (late 90's) 394xp that starts/runs well, but suffers from lack of power. Here are some photos of the cylinder and piston. The piston replacement is a given. How bad does this cylinder look?

-Thanks
 

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The real question is can you feel the scratches and is yhe bore still round. Just by looking I would say try cross hatching it realy quick and see what the stroke shows you.
 
You have transfer on the cylinder. That must be cleaned off first. A combination of acid and/or sandpaper should be used to remove it. Do not use a hone to remove the transfer. You can use one for a final finish if you'd like, but not for cleanup.
 
A hone is for putting a finish on the bore, not "sanding off" transferred aluminum. There is only so much thickness to the NiSi coating on the cylinder wall. Using a hone will only serve to wear that down unevenly and excessively. Also, there's a risk of beating through the NiSi on the port edges. You want to sand directly on the aluminum that is transferred onto the cylinder wall. This is best done by hand. You can also get muratic acid from the hardware store and use a qtip to apply it to the aluminum. It will bubble and turn green. It helps to heat the cylinder first as it makes the acid work more quickly. You want to make sure there are no pits or scratches through the NiSi though, or you'll eat the aluminum behind the NiSi.
 
Yes you will know the condition of the cylinder much better after removing the transfer completely .
Acid is a good way as Brad said and there are other ways on youtube that work well also.
Take your time with acid and wear gloves and eye protection. I usually apply the acid and let it sit for 5 or 10 minutes then, I dip some scotchbright pad in the acid and scrub on the aluminum with it. Repeat until all aluminum is gone
 

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