bad news for my 3SGTE engine (56K ouchie), NOW UPDATED WITH THE NEW PLAN!!! Options

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well, looks like i have a worse case senario on my hands at this point.
removed the head on the 3s ive been working on, first thing i noticed was TONS of carbon..tops of the pistons are coated with it, its so heavy is actually flaking off.
next i had a look at the cylinder walls..and i discovered this:

needless to say, the wife can feel it with her fingernail, and from what ive read, that = time for the machine shop.
which absolutly blows.
i had no intention of "building" this motor, as my power goals (~250WHP) really do not warrant it, and i really wanted to try and get it in ASAP.
so, now im at a crossroad....do i say to hell with it, and buy forged rods and pistons over the next several months, and slowly over the next year or so build the motor, and then start the headwork...(cause IMO its kinda pointless to put a factory head on a built block) which could take ANOTHER year with MY budget!...lol OR
another option at this point is a factory short block..i can get one new for as little as 1450$ or so to my door.
have the head rebuilt (~600) and start new...
OR
at this point, im fairly confident in the 5s block, we know the weak point is pistons and rods..and hell, im pretty close to my power goal as it is with the 5sfTe..im starting to think that for my power level, i could build the 5s to take the beating pretty easily for the next few years..especially if i spent a little more time on tuning, or stepped up and bought the emanage or somthing...
thoughts? ideas? comments?
help me out here, guys, im kinda bummed out about this whole thing.

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thanks for the replies, guys.
theres no doubt that is gonna need oversized pistons.
as far as the goal thing, it was always 2 seperate goals, one for the engine, and one for the car, because i was never expecting to make the power i have with the 5s.
being as close as i am to my goal for the car with the 5sfte, i must admit my first thought is to continue to work on improving the 5sfte setup i have, and go from there, slowly working on the 3s build as $$ and time allow..
keep your opinions and thoughts coming.
player, if your footing the bill, ill start the stroker tommorow. you call ricky and order me up the nemisis, cause thats the FIRST thing that'd be on my list to go with it.
jeremy, its my understanding that scratches like that are caused by somthing that dont belong in there...lol
maybe contaminated oil...ect..i dont really know what exactly cause these.