Hi Lennyharp,
Let me guide you through what I would do if I were repairing your motor in my shop. First let me cover the good news, of all the heads used on the NE motor, the very early [very rare, used on motor with 26 MM carburetor] and the last version has the most potential, and it looks like you have one of the last version heads [also rare]. But a few comments about the head and what I would do if it were my motor. If you look closely it will become apparent that when the head was cast, it wasn't aligned correctly, and required additional machine work to "clearance" the valve heads into the combustion chamber. Because of this misalignment the valve pockets are now oblong instead of round, but a little work with a Dremel grinder can smooth out the the uneven areas. All of the NE heads use the long reach sparkplug, however it might be considered poor engineering for 2 reasons, sometimes the carbon buildup on the extra threads removes the threads in the head during removal, and many consider extra threads in the combustion chamber a cause of higher operating tempatures. There is a NGK replacement with a shorter reach but it is too short. Most tuners looking for power and lower tempatures, will either mill the area on top of the head to use the shorter plug, or put extra washers under the longer plug to remove some of the threads sticking in the combustion chamber [don't use many or you will effect the heat range of the plug].
Often I have checked heads that weren't level when they were cast, and had to mill them to have the desired "level" surface to seal correctly with the cylinder. If you mill the head [.060"] you will increase the durability, and add power at the same time. Durabilty will be enhanced because as the head is milled the mating surface around the larger 10 MM head bolts will widen, because the chamber has angled sides which increases as it gets closer to the top of the chamber. The milled head will also be more reliable because it will be flat and will be less likely to leak. Some of the side effects of a milled head include more power, easier starting, smoother idle, faster acceleration, etc.
In order for the head to mate well with the cylinder, the cylinder must be flat [level], and from your pictures I see large tool markes across the top of your cylinder. You might want to remove the valves and buff the top of the cylinder on a good belt sander, then work the head on #220 sandpaper on a level surface [piece of marble is what I use]. If it were my cylinder [which it isn't] I would recut the valve seats, lap the valves in with grinding compound, install the progressive springs correctly [tight winding towards the valve guide], and know I would have good compression and a better seal. Another modification that should be considered is a possible casting flaw at the top of the exhaust port should be removed for better flow. On the majority of cylinders I re-work, I also install a special aluminum tube in the hole in the base of the cylinder to help separate the oil and air to help vent the crankcase a little more.
Hope this information is helpful.
Have fun,
Quenton
For my two cents I was thinking about using threaded steel inserts on the head to eliminate aluminum vs steel thread challenges; an expensive/ laborious concept I suppose. Another idea, (watch out I'm dangerous when I try to think) is painting the exposed portion of the threads with flat black paint before installation. The idea is that crud will build up on the paint instead of the metal, theoretically allowing the crud and paint to "peel" off during removal. That might leave a little crud in the cylinder, but it should leave the aluminum threads intact also. 
