Douglas did catalog a Sports version of the EW with aluminum pistons. What they actually had in them is another matter. I have a Sports version of the 600EW, also cataloged with aluminum pistons, but actually it yielded up cast iron pistons on standard bore!
I would think for the 350cc EW, 0.0045-0.005" clearance at the bottom of the skirt and perpendicular to the gudgeon pin would be adequate for a modern cast silicon-aluminum alloy piston such as the Honda CB750. But there are a lot of things that could cause the piston to nip up. You say the engine had been rebuilt, but how well was the job done? A miss-aligned crankshaft (built up from various pieces of different cranks) or a bent connecting rod (they are kind of flimsy) will tip the piston in the bore, highly load it, and cause it to overheat, expand, and seize. This could cause it to seize on the side of the piston, in line with the gudgeon pin, in which case it would be obvious something other than the piston just being fitted tight was the matter. Or if the alignment was not too greatly impaired, the piston could run hotter than normal, in which case it might just seize where the clearances are the smallest, at the bottom of the skirt and perpendicular to the gudgeon pin. I had one engine where the piston was picking up at the top of the skirt; cause was the big end roller bearings were seizing.
I do not know if it is the practice on Japanese motorcycle pistons, but in the automotive world the wristpin is often offset to one side of center to reduce the side loading on the piston on the power stroke. Putting a set of these pistons in a Dougie would change your timing, and you may be running with ignition more retarded than what you though you set for. It may be enough to overheat the piston and expand it to seizure, though one would expect tell tale signs on top of the piston crown. There is the possibility of having each piston offset opposite ways, so you could never time the engine equal on the front and rear pots!
Is the ignition timing correct, is it jetted too lean? This will cause it to run hotter than normal, and the tightest piston will nip up first.
When it is said the distance from the gudgeon pin to the top of the piston was the same, top of the piston means the top of the first ring land or the top of the crown? The Honda pistons are likely crowned, where as the original EW pistons would be flat.
Lack of oiling is probably not the problem, as the rear cylinder tends to get more oil than the front. This is because the crank throws oil from the bottom of the crankcase into the rear cylinder. This does make that cylinder run cooler, but this is probably more than negated by the poor air cooling of the rear cylinder. It is often repeated the strange but true tale that the rear cylinder on a motorcycle runs cooler than the front because it receives some assistance from 'oil cooling' and also that the front cylinder runs in the lee of the front mudguard. But I think this old chestnut pertains to big American v-twins, where there was a fat tire and huge mudguard to block the wind to the front cylinder, and the rear cylinder is not as effectively buried behind the crankcase as it is on a Douglas fore and aft engine.
Boring out for a loose fit is a poor engineering practice, and tends to promote excessive amounts of oil getting up by the piston and rings, and burning of oil in the combustion chamber. Plus you have an engine that is starting out half worn! Better is to gently break in the engine and ease the high spots down on the piston. This of course means stripping down the engine multiple times, as well as taking a lot of time and patience that few have these days. It is quicker and simpler to treat the symptoms and not the cause. Better yet would be to find out why, with the proper clearances to start with, was the engine tightening up.
Re- point seven, I think you mean that the pipe projects into the timing chest? This stand pipe should be high enough that the teeth of the lower cam wheel are fully submerged in the oil, which will then transfer oil to the rest of the gear train, cams, tappets, etc. When the engine is running this level will be drawn down to a certain extent. As long as this is achieved, any additional oil is surplus, and is lead off via a pipe to the primary chain. It is common that when the bike is parked and the oil drains down to the bottom of the timing chest, the level rises and goes out the overflow pipe, and leaves a puddle on the ground under the machine.
-Doug
