Hello CG,
If you or the customer plan on keeping this and getting more use out of it, it will take more than a head gasket. If they just want to "flip it" clean it up and put a head gasket on it, but I advise you to not offer any warranty at all.
If it is a keeper, I recommend you pull the pistons, hone the cylinders and re-ring this engine. It may also be a good time to replace the rod inserts if they are scored up or showing excessive wear.
The black line in the cylinder suggests the upper rings are broken from overuse of starting fluid at some point. The piston skirt does not travel that high up into the cylinder.
The second cylinder with all the fine vertical scuff lines suggests fuel thinned oil and poor oil changes along with the compression rings being weak.
These small diesel engines are more forgiving than their gas engine counterparts