All noted on the toothpaste as a "no go". However, I believe the valve and seat are ok - there appears to be a good seal there.
The interesting point is that initially I put a small amount of oil in the back of the cylinder to lubricate the ring. Now, when I first turned the flywheel by hand, I had good compression, and then after a dozen or more swings on the flywheel, the compression dropped away until there was none at all. When I put the oil in the cylinder again there was compression. Now I know that this is not a lack of compression in the cylinder, because if I remove the valve block there is good compression in the cylinder all the time.
What I think is happening, is the oil is making its way in the valve block and lodging between the valve guide and block and giving a temporary seal. When this is eventually pushed out from between the guide and the block the compression is lost.
I think the proof of this is the carbon that was lodged in that gap between the guide and the block.
Anyway, today I will seal it up and give it another try.
John