Eric,
Additional two cents worth:
1. Sounds like it was designed for a 10mm wide bearing. How deep is the bore in the case? While you can get away with some overhang, they would not have designed it that way, indicating something is amiss.
2. Originally it was a felt washer for a seal. As Mark said, you can visually inspect the condition of the seal lip. Molded lip seals like that are really intended to run against hard surfaces, the crankshaft is heat treated, but not that hard on the journals. Eventually a lip seal like that will wear a groove int he journal and sealing performance will diminish.
3. There is a reason that the manufacturer goes to some trouble to active a very accurate fit for ball bearing journals and housings. A slip fit does not provide full support to the bearing race and might encourage it to creep around and wear more. You cannot Loctite the bearing to the journal, as one usually puts the bearings in the crankcase first. Well you could assemble it with a basting of Loctite, but i would not want to be the next person that had to get it apart! The accepted engineering fix is to have the journals built up with nickel electroplate and then resized. Can you just use it as is? Yes. Is it good practice? No. Even though it feels as if it has no play, the fact that it slides on freely means it DOES have play.
4. The head gaskets look like they have been cut from sheet copper. The original style would be copper faced asbestos (or substitute) sandwich. Annealed, solid copper gaskets can be made to work if both surfaces are flat or can be pulled up flat. Those look like an amateur effort. The lack of fidelity to combustion chamber is not fatal. It will leave a gap for un-burnt mixture that will eventual collect carbon. However we are not talking about a high efficiency engine or emissions compliance. But the slotting of the holes to meet up with the cylinder head bolts just offends the eyes!
-Doug