The piston height can be deceiving. Get a dial indicator and clean a couple of the piston tops off so you can get a good reading. I'll bet you can mill .030 or more. Might take care of that pitting but you should know what piston you're going to use and the CI before so you don't go too far. That being said...there is no way to make a 500 hp engine out of a 400 for cheap unless you own a machine shop and a parts store. Good luck.
