Does it matter if you use dissimilar metals for piston and bore? I don't know about this engine, but in general the piston never touches the bore – the rings or packing do. All the piston does is act as a carrier for the rings, and bungs up the rest of the hole. Make it from what you like in principle, so long as it remains small enough never to touch the bore, even at steam temperatures.
Bore finish. Depends on the rings in general? If you are running iron rings in iron bore, then honing is one way. Personally I have never worried about that, and just finish with a decent tool finish. Run in on my Metre Maid, – its done about 4 hours running, its gone from quite tight all round , and now, if you pull the engine back with reverser in neutral, suction on one cylinder will pull the engine forwards half an inch or so. So the seal is pretty darned good. Nice parallel bore, decent finish on a fine feed, and to the size specified by the ring gap is what is needed.
The alternative generally would be a bronze or gunmetal bore, using o rings or other PTFE/graphite packing as rings. In general they like a high polished finish, but I have no great experience of them, and would leave advice on that to others. However, a properly reamed finish should provide a huge pressure seal with O rings on a pump, so that should be Ok for a bore. As always when reaming a round hole, go to about .003" undersize, ream slowly, stacks of coolant to prevent sticking with temp changes and with a floating reamer if possible.
How to bore it. Between centres has the advantage of always producing a parallel bore, but often tooling is not so easy to adjust, and it can chatter horribly. So my choice is always a good stout boring bar and the 4 jaw. But that would depend on the size of the chuck/lathe against the job, and the confidence oyu have in your lather turning parallel. For small work you could use the Keats type angleplate – used to be opular, probalby less so now. The mill is a good way too, as has been suggested. Possibly easier to get bore and portface all in the right place in the mill.
You know your machine, how it cuts on the backcut, and how to remove spring from the tool. At the end of the day have confidence, its just another hole. And, if you don't have that confidence, there is usually enough spare metal to allow you to have a few practise finishing cuts in the bore as you go, before having to hit final dia.
All the best.
Edited By mgj on 30/05/2012 23:20:45