It looks to me that coolant has been coming up between the block and the liner - they look like holes. Can you clean the deck up and take more pix?
If it is as I think, then you had no option but to remove the engine in order to have it fixed properly.
Slipped liners can usually be felt as a slight difference between the height of the block and the top of the piston. Sometimes it is quite a large difference, e.g. 5 mm.


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. should not have taken the motor out. Although I've noticed a bit of corrosion on the block, and I'm not sure what to do with it.

... Corrosion?


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