Chrome peeling off cylinder wall?

Hey guys I have a grubbee 66cc. Skyhawk. On a Rockhopper.
I broke it in with Maxxim 927 castor. At 16:1 for the first gallon. Riding up and down the block for 10mins. at a time.I feel a very gentle break in. After the first gallon I went to 32:1. I have 2 gallons total run time.
Yesterday I was on a 54 mile ride. I stopped to have lunch. When I went to take off I noticed a strange wind on my knees. Stopped let it cool,and checked the head to see if it was tight. It was loose. So I took the head off to see if it was a blowen gasket. The gasket turned out to be fine.
I did notice however that there appeared to be a gouge in the cylinder wall. So I figured I was 27 miles from home. Im not rideing. So I reasembled the motor and limped home.
Today I took the motor back apart and its not just one gouge. Its several! Theres alot of chrome missing. It still has lots of compresion.
Has anyone else had this happen? I am going to run it until I can afford a new cylinder and rings. It just sucks that there isnt anykind of warrenty against deffects. I havent even had the kit 30 days.
I understand not knowing how it was broken in is a viable reason to have exemptions. But come on.
Before people ask, I wont say where I got my kit. I deal with them alot. I fully believe it is manufacturing defects.

I figure I will order a new cylinder,piston, and rings. Put that one on. Then I can use this one to port and polish,and play with the transfer ports a little. I would like to see if getting them to breath right helps any. I imagine a wall in the tranfer roofs cant be good? I can see alot of places that could use some help. Has anyone tried a boost port?If anyone has any suggestions please feel free to share your expiriance. The search here isnt really that great.

Gearnut,thats the strange part. The piston and rings dont hardly have a scratch ont them. I was just taught to replace them when you do the cylinder. Im thinking about a new motor so I can tear it down and put good bearings and polish everything. Piston,wrist pin, crank,work the tranfer,intake,and exhaust ports. I think with some time and effort one of these motors could really scream.
But then I could use a thatsdax friction box and use one of my pocket bike engines that already flies. I would have to do my full suspension bike though.

I was riding down the street yesterday, and a freind pulled up next to me at a stop light. He roll's down his window. Says that thing is pretty fast. I asked why how fast was I going? He sad I was doing between 35-38. I dont think the chrome peeling is a problem. Concidering it wasnt even warm yet. It started running alot faster after it was warm.