That would allow water to get INSIDE the engine.-----JB weld would repair that.----But I see damage / wear ( scoring ) on bottom piston.-----Here that motor would be torn apart for inspection.----You found the " smoking gun " on this motor.
That hole should not be there.-----Yes , that can cause water to be drawn into the cylinder.-----Worse yet , if water found it's way into the engine when shut down it is bad.----Could lead to corrosion of the bearings.----Here I would take a motor that apart for inspection.----Easy for me as I have all the parts for anything that my friend