Progress so far...

No intent to slam anyone here but there's a lesson here. You got some work done and the result is less than you wanted and it cost you some money which you probably feel is wasted. I can tell that you care about your work and know the difference between a job well done and a half assed job. So, I'll give you credit for that. I'm sure your intent was to clean up the cylinder with minimal loss cylinder diameter and not having to replace the pistons and there are times when that can be done but usually 90% of the time, going to first over is the only way to do it right with no compromises.
I'd love to be a fly on the wall in a machine shop when someone brings in a part to be reworked. Conversation- an exchange of words to convey thought and it involves the messenger putting in to words the intent of the message and the receiver of the message interpreting the words back in to the intent of the message. I can't count how many times during my working career that I had to investigate an accident or incident where the accident was caused by miscommunication.

So, let me have a crack at the "conversation" with the machine shop.  
You go into the machine shop with the cylinder block in hand and talk to the machinist. You talk about the cylinder being low on compression and the cylinders are glazed and you have bought a set of rings and hope that he can deglaze the cylinder and take off a minimum amount of material so you can reuse the pistons.
He hears your words and realizes you're no dummy and it may be possible to clean up the cylinder and achieve the results you want BUT he probably thinks that since you're asking him to do the best he can and allow the reuse of the pistons, that you're willing to accept some compromises in order to get the bike running at a minimum cost. There's the first mistake - an assumption was made with no concurrence.
At this point what he should have done was pulled out his dial bore gauge and take  a quick measurement of the bores and tell you just how much material would have to come off to give you true bores so that your "ring job" would reseal your piston/cylinders. Had he done this you could have made a decision on a first over bore/hone with new pistons/rings or realize up front that if he cleans up the cylinders with minimum material removal, what you're about to get back is exactly what you got back. Had he done a quick check which takes less than 5 minutes to do, he would have kept the customer happy and that's really important to maintaining a business.

From your pics I can see the out of round at the top of the bore and if you proceed with your rebuild, you won't be happy. The critical area for sealing pistons, rings and cylinder is at the top 10-15 mm of the stroke where the cylinder pressures are the highest. Leaving the cylinders the way they are now and all kinds of things will happen. Massive pressure drops in the top 10mm will cause ring flutter and will prematurely wear out the rings. The piston blow by will wash down the cylinder, removing the oil film and may in fact cause piston seizure. All not good.
First over rebore is specifically for exactly what you had- normal wear and tear of a well run engine with miles on it. Having to go to a second over rebore from stock is for  things like a broken ring gouging the cylinder wall or something getting sucked up from the intake and finding its way in to the cylinder causing damage. In most cases, first over rebore should be considered when the engine is tired and needs a ring job.

Bottom line for me here is that it's unfortunate that the conversation didn't go differently and we can all learn from this. Clear understanding of what is asked for and what will be delivered is critical. Make no assumptions and bear in mind that machine shops are starving for work since the world has now gone to replacing parts rather than reworking. It's only the guys rebuilding historical machines that will ante up for reworking parts.

Looking forward to seeing where you go from here.

And again, NOT meant to slam anyone here, just a good opportunity to discuss a bad situation for the betterment of all.

Thanks Kawboy. That was a pretty accurate assessment  of the conversation. Although there was an added complication. I'm in France and my French is not great. so I was relying on my poor long suffering wife to translate, as was the engineer who didn't speak a word of English..(All the technical terms made it even worse/funnier). If I had more time I would 100% go for the re-bore straight away as I don't like riding bikes that aren't performing as they should, or could have an issue at any moment, and even if it is running ok I'll have those hone pictures in the back of my mind.  . Saying that, apart from drinking oil and fouling plugs it actually ran quite well before.I'm kind of stuck between a rock and a hard place as I need to get this bike done asap for several reasons. It's holding up my garage space where I'm finishing restoring a 1969 Chevy Nova. Which I now need to sell asap for the money and the space...(I lost my normal work due to the Covid restrictions.)Waiting for piston rings to arrive for over 2 months threw my schedule out and I guess new pistons and ring could be the same.  I was hoping to get it done in  2 or maybe 3 months....ambitious I know.   I tried to source the rings in France but I was quoted over 700 euros for just the rings.  That was if they were available at all. Beautiful country, but insanely expensive.So to make it whole again I'm going to forge ahead and come back to it later for the re-bore, maybe in the winter. It'll be an interesting experiment if nothing else. Just to add insult to injury I'm also going to try another no no...An "after market head gasket". Well if it's going to come apart soon enough anyway.  I said this could be toe curling.  I did buy some Honda bond for the water jackets though.   The one good thing is, having worked on a Z1300 is now less intimidating,. I'd often hear people say "Oooh complicated engines" . It's now demystified it for me .Here's some update pics. with new and old cam chain tensioner wheel. That was a disaster waiting to happen.

The block went on with a little help. I didn't use any piston ring compressing tool just my finger nails. and 2 pistons at a time. My manicurist won't be happy.

 That tensioner wheel made my toes curl! Goodness!

And btw, don't forget the two little rubber squares on top of the tensioner holder when you put the head on.... I nearly did.

Paul

Thanks, yes that tensioner wheel was past it's best for sure.  I did find a few bits of rubber when I drained the oil, I wondered where they came from...I bought some new rubber blocks for the tensioner too, assuming the rubber was probably aging all over the place by now. I put them on just after taking the picture, don't worry they are there.   The head is on and the cams installed. I was hoping to get the cam timing on the first attempt, but life isn't like that.  . 4th attempt it is. I put some Hondabond around the water passages. This one had the highest temperature rating of all the various bonds that I could find.
 The black headed bold on the timing housing was a replacement, as the original was broken. I had to weld a nut to what was left of it to get it out. All new parts came from Helmut at the German shop. Not cheap, but excellent quality, and super fast delivery!

Now the valve cover is on. I should do some painting before doing anything else, as paint takes a while to dry.  .  I started with the tail piece which had been held together with filler. 
After grinding away the filler and paint I could see there was a large hole on one side. So I cut out a section, as small as possible, as long I was in to full thickness materiel. Then used a section from my spare ABS donor mudguard. I plastic welded it in from both sides, and will reinforce with Fiberglass underneath just to make it super strong..