blue flame in the carb sounds like you need a valve job,
i would try a hone first, but if there is any pits from rust left, i would go 1st over with the jug, you will need to buy the 1st over piston & take it & the jug to have bored & honed at you local shop.. also i make sure I bought a dome piston, or you can buy this kit on ebay. good luck.
http://cgi.ebay.com/ebaymotors/_W0QQ...sQ26Q5ffviQ3d1