Blown rod bearing!

The rods have to have horizontal play (side clearance) otherwise they will self destruct.
That's also how the oil gets on the cylinder walls, it gets slung up there after oiling the bearings.

Well, I reached bottom of the the case. Time to clean, inspect and rebuild. Notice all the metal flake in the oil on the bench. I should have taken a pic of the oil pan, YUK!

Here you can see the deformation of the crankshaft. I miced it to be 1.4mm out of round.