Compression tester won't work on these engines, they have a built in compression release to help them start so the tester will read really low. Unless you're going to bore the engine I wouldn't mess with it, putting new round rings in an egg shaped hole will probably smoke worse than it does now. Pull the head and resurface it and install a new gasket, I always pull the valves and clean them while I have the head off just to avoid them sticking later. Here's a link on how to resurface the head yourself.
http://www.onlycubcadets.net/forum/s...ad.php?t=45286