I think you're heading down the right approach - take it all apart, clean and inspect everything, check all your clearances. I'd clean the bores with Scotchbrite, make sure there isn't any rust on open valves or valve seats and once you're happy with everything, then reassemble it with correct assembly lubrication on the cam, bores, pistons/rings, bearings, etc.. As another person noted - would check all the valve springs to see if they have consistent pressure and are within spec (depending on the CAM that is in it).
It appears to me to be a stock type rebuild and the tag on it is probably correct - as I noted a .010, .010, .020 set of numbers. Crank is probably ground .010 on the rods/mains and the bore was bored out .020 . . . which matches your readings.
It could easily be a great engine and fits the era of your car. From looking at it, appears to be a 39-41 era engine. The fact that it has a 3.207 bore makes one ponder what it started out as? The Ford engines of that era had a 3.0625 bore - the Mercs a 3.187 bore . . . but this isn't a Merc engine (the deck doesn't have the Merc water hole pattern).
It may have been a 221 CI Ford engine with "tin-can sleeves" - that were then knocked out and the bore size increased . . . no way to know.
On changing the distributor, check the end of the cam to see if it has the "long nosed" early cam or not - this can play into what pieces/parts are used to go back to a helmet distributor. Note: There were two different cam "noses" on the 39-48 engines . . . one is basically flat and the other protrudes about 3/8 or so. Take a close-up picture of the cam front when you remove the distributor - then we can tell you what you need to do on this end of the deal.
