The pitting on the piston is caused by detonation. That is also what killed the plugs. The scratches down the side of the piston are probably from the plug elements getting sucked down into the engine. Whenever an engine starts killing plugs, STOP RUNNING IT RIGHT AWAY!
Detonation can be caused by several things.
1. Too much RPM (change gearing)
2. Too much nitro (drop percentage or add a head shim)
3. Too much compression (add a head shim)
4. Worn out rod (replace rod)
5. Worn out bearings (replace bearings)
6. Worn out crank pin (replace crank)
7. Too hot a plug (rarely a problem with small block motors, they like hot plugs)
When this happens to an old motor that has been running fine, it's usually the rod and/or bearings. Whenever you replace a piston/sleeve set, replace the rod too and a new rear bearing couldn't hurt either.
This thing is shot. It will need a new piston/sleeve set and to keep from killing the new set, you will need to replace the rod and bearings as well. Might as well get a new motor for all that unless you get a really killer deal on all the parts. Especially since the crank is probably worn out now too.
Also, if you have to run Byrons GenII, add at least one ounce of castor oil to every gallon of fuel. Byrons just doesn't have enough castor in it anymore. Your engines will thank you