Sounds like a fun project. I thought I would provide you with some additional information
to consider.
The case reed motors can be modified to make good power with a fairly decent powerband,
but it requires quite a few mods and a fair amount of money. Some of the problems have
already been identified here: Excess crankwell volume, heavy crankshaft, mild port timing,
recalcitrant power valve, Mikuni TMX, etc.
If you have your heart set on using the OE engine, I can recommend somebody that can turn
it into a match for anything out there today. Of course, the catch is the cost.
As an alternative, you could do the same thing that Mike LaRocco and others did when the RC
valved engines first showed up by switching to a 00/01 engine. Those engine drop right in to
the same engine mounts and swingarm pivot spacers. The only change required is a different
head stay. There is a company that markets a very inexpensive kit for this conversion. The
gen 3 roller with the gen 2 engine is the ultimate Honda all CR250 and is the bike Honda should
have built and marketed from 02 to 07.
Of the two, the 00 is a better choice. Eric Gorr comented in a book years ago that the 2001
engine was the best ever. That drove the price of those bikes and engines up dramatically.
What EG didn't say, is that the 2000 engine is identical except for the port timing and it comes
with the superior Keihin PWK carburetor. Additionally, both EG and Tom Morgan (probably the
two top Honda gurus still in the mix), prefer the 00 cylinder as the starting point for a race
motor - more potential. A complete used 00 engine can be bought on EBay, rebuilt, ported
and race prepped for less than the cost required to bring an 02-07 engine up to speed.
It all boils down to what your goals are. Do you want something that will match the latest SX
to the first turn, or do you just want a have some "fun" running mid pack.
Whatever you decide, good luck with it.
dogger