I would go for a new engine $110 into a MT12 at 1.15hp. If the motor runs and you know the crank and bearings are good replace the rod and get it pinched and use as a backup motor. See the link for a nice database on engines. For $200 there are a lot of options--new 12tz ect......with much higher hp.

http://www.nitroreview.com/TheDatabase/homeengines.cfm