Those heads look ok but I don't think they were torqued down enough as there has been exhaust gasses leaking out over the barrell. This would have caused a misfire in that cylinder and possibly a knocking sound which tends to disappear as the engine warms up a bit due to the cylinder head slapping up and down a bit. (I know this as it happened to me... Bliidy copperease grease makes everything come back undone again!)

Get new piston rings... Pistons look fine although I think the heads and pistons may have been renewed at some time as those pistons aren't bog standard (mine are like yours) and the heads look fairly new too.
That camshaft... It doesn't look too bad... See if it is scored or worn. If it is get yourself another one (if you can!). If not, it could well be used again.
Keep your hydraylic valve lifters but strip them down and clean them, well worth it. I did mine a few years back and not once have they made the slightest noise when starting, even when left for days!
Doing a good job by the way!

Mark.
I'm Not A Complete Idiot... Some Bits Are Missing!
1.6 Modified CT engine.