Go to the site below and download a free service manual. You can determine for yourself how involved the project will be, based on your ability. Your manual is near the bottom of the Yamaha list.
http://www.carlsalter.com/motorcycle-manuals.asp
It sounds like the cylinder head is pretty well beat. I would suggest you put a different head on the bike.
Google " motorcycle salvage honda ". Find a salvage head there. You may want to pick up a cylinder also because if the head is that beat then the cylinder has probably been bored several times in the past and has limited lifespan. Don't forget the spark arrestor.
If you pull the beaten head off, the shop will need to do the valves anyway. That's the main cost. Just switching heads is something you can probably do with a manual at hand. When you are on the web, check out the cost of the whole engine. Now you have spare parts galore > clutch, shafts, gears, shift forks, kick start, etc.. Your bike is nearly 20 years old. Parts get harder to find as time goes by.
Granted that you are buying somewhat blind, so try to get in verbal contact with the seller. You want to be confident in the purchase. Chances are you can get an entire engine for $300 to $400 plus shipping. Also consider selling the bike on an "as is, where is " basis. This would give you a chance to cut your losses. I know you have some pretty tough decisions to make and I hope these thoughts and ideas will help you in those decisions.
Please rate this solution. Thanks rayzee2000!