The armature does not look real bad. I would clean the commutator up on the lathe. I would not carve the heck out of it. The brushes look odd shaped. Some of the hardware stores sell brushes in the boxes next to the nuts and bolts. I wonder if you can find something close. I have used sandpaper to make them fit before. Then you can tell if the engine is worth it.
It probably was dirt on the brushes not making contact. (sitting and moisture) It spooks me wondering about the metal bits in the starter.
I would make sure you put in a new water pump impeller. A buddy had an old one let loose and bits of rubber went all over in the water jacket.
That is me, I know you are the guy who always does a great job.