Time for some closure on this thread, almost a year later....
I am glad to report that the bike is back together and I have been enjoying some great rides with it!
I ended sending the engine to the KTM dealer in Reno and getting new valves/rings on both cylinders. about $900 of parts, $600 of labors and then taxes...ouch.
I put it back together and it had never ran that well. I really missed it!