hey boss
sorry for your troubles but your on the right track, after looking at your pics...darn good pics btw...
that reading of 40psi def is weird.. i tried a HF comp tester too...and all my saws showed exactly 44psi..LOL
turned out the fitting where the hose connects to the gauge was machined too short and leaking..
long story short..HF comp tester equals JUNK
i have a weedeater that needs a rebuild with 48 psi comp, takes 20-30 pulls but it will start and run, once LOL
i found an old Actron comp tester deep in the tool box and they sell them on ebay and they are dead nuts accurate
looking at the pics...the piston and rings are for sure done..
if you can run your finger nail down the side of the piston and not feel the machined grooves, its a throw away
once you start getting all that blowby the carb doesnt know wtf to do .
if the cylinder has no scarring, id say theres no reason you can use it one more time. with new piston and rings..
if you can find the set, replace it all of course.
the reason i say reuse is that i just rebuilt an 015L and 08s, (these saws are older than yours i think) both with original cylinders, using new stihl piston and rings the 015L tested at 178 psi and after 8 tanks its sitting at 170-175psi.....the 08s tested at 188 or so, after 8 tanks sitting at 185ish psi.
if you can find stihl piston and rings definitely go with that you wont regret it.
if you decide to reuse the cylinder, some will say im crazy, but thats ok, the doctors said the same thing
what i do when i reuse cylinders is use some 180-220 sandpaper,
a small piece about fingers length and i manually , put a crosshatch back into the chrome lining
first at an angle in one direction, working my way all the way around the cylinder...then the other direction to get the crosshatch
too hard and youll ruin the liner, after that , i use a fine scotchbrite pad and repeat the pattern (lightly)to knock down sharp edges
then wash it out real good before install..
once you get it all sealed up again, youll have a strong running saw and the effort you made will have been worth it..
all the best