Engine increases revs at idle, smokes after hot

Not much is un salvagable. Its wether your willing to spend the money and/or you have the ability to do the strip / rebuild and only paying for parts and specialist work ( if its needed) until you check valve clearance, compression etc accurately and remedy if needed no one can say for sure without stripping the motor. You can try doing a compression test before and after adding 5 or 10 ml of oil into the plug hole. If the compression test reading increases significantly after adding the oil chances are the cylinders or piston rings a badly worn. 
if it doesnt increase then chances are valves are not sealing well .
if it needs a rebore, then figure in the actual rebore, new pistons and rings and not including paying some one to do the rebuild you would be around £500 in the uk. Add onto that the work etc etc. It'll soon mount up.
The only downside to getting another motor as a replacement is you have no real idea of its internal condition and may be equally poor.

Ghostdive is saying your light colour on the sparkplug electrode indicates you fuel air mixture is a bit lean and not the ideal ratio. If you adjust it so the electrodes are a nice tan colour then richen ot a bit further. 
A little rich is better than too lean.

All right, I appreciate all the help and info will see what happens with a little oil and go from there.

Thanks again,
Jakob

Retested after adding some oil. It seems that the increase in 1,2,4 wouldn't be considered significant unless I'm wrong?
Before - dry test:
1. 95
2. 115
3. 110
4. 70


After - wet test:
1. 100
2. 119
3. 110
4. 78

The engine needs to be hot and the throttle held open in order to perform a compression test.  Needless to say the valve clearance needs to be in spec too.  If the valves have been neglected the clearance will decrease and then they can burn or at least build up a layer of carbon on the sealing surfaces which can affect the results.  All this said, it's not common for compression to cause a creeping idle.  Out of sync carbs can, and compression issues don't help of course, but compression of itself won't cause the problem as described.

Regarding the bubbles out of the gasket, that simply means your gasket sucks.  Get a new OEM gasket after you check and adjust the valve clearances.  Make sure the crankcase breather is clear and don't worry about a little blowby unless the engine is burning a bunch of oil.

Thank you, will try the test hot, apologies for missing this. Will adjust valve clearances and get those new boots on the manifold and go from there.

Really appreciate it.
Jakob

Defiantly check valve clearances, #4. may have a valve not completely closing. My Harbor freight compression tester gives 20lb lower readings using the hose attachment over using the short pipe with rubber tip.
If you find a tight valve on #4 adjust to high end of spec, spin the engine several time and check again. 

All right, I've made some progress.
I was curious as to the state of the valves and so took off the valve head with my dad.
Do the exhaust valves in the attached pic look okay?

They looked okay to me but wasn't sure. Obviously the intake vs exhaust are much different.
Also posted pic of piston tops for the hell of it. I was surprised that they all were sitting at the same height. I thought some would be in different positions depending on where they were when the motor last stopped. I know you can't see them from the bottom, but do they look healthy at least from what can be seen from the top?

Any suggestions on other things to do while I'm in here?

Valve clearances are as follows, will get some shims shortly.
.0 just means couldn't get any feeler gauges through.

Intake
1. .076
2. .127
3. .127
4. .102


Exhaust
1. .0
2. .127
3. .0
4. .0