Sounds like you may hae a combination of things working against you there. The light blue smoke is surely from burning oil, and as you are thinking, most likely from the piston rings. You can also get oil into the cylinder through bad valve seals, i had that problem with mine for a while. With the valve seals, the smoking will lessen or go away completely as the engine heats up.
The engine running like **** sounds like more of a carb problem. I'd say, judging from how yours was cared for, that it probably needs a good carb cleaning more than anything. It's amazing how much crud can build up in a carb in a few years, especially something that isn't cared for all that well and is stored outdoors. Also check the intake manifold between the carb and cylinder head for cracks or other leaks. This is a pretty common thing on warriors, the rubber will crack right in the middle because all the stress from flexing is concentrated right in the middle, the outer ends are actually just aluminum with a rubber coating. I had 2 of them damn things crack in the time that i had my warrior, and both times it had me running around in circles trying to find the problem.
If i were you, i'd get a wiseco piston kit with a mild overbore, like maybe .040 over, and of course all the top end gaskets that will be required. Then when that comes in you can tear it down and get a machine shop to bore and hone the sleeve for the new piston. When i did mine I also replaced the valve seals just as a good measure, even though i wasn't convinced that they were bad. It added some extra labor to the rebuild, but the seals themselves are relatively cheap, i think i spent 7 bucks for the new seals.
Before i would start working on the top end portion of this repair, I would take the carb off now and go over it real well. Check for any leaks, dirt, etc and clean all the passages and jets very carefully. Take it apart as much as you can without using a hammer, don't just blow compressed air into the jets without taking it out. Make sure you can clearly see light through them and there's no blockages. Make sure the floats move freely, and the needle valve isn't sticking at all. Be thorough, as it only takes one little grain of dirt to completely screw your fuel delivery.
The reason i would look into the carb issue first, is so that you can have it running as smoothly as possible when you get the fresh top end installed. It's impossible to properly break in a new top end when the engine is runing like crap, misfiring and revving erratically.
That's my 2 cents, hope it helps you some.
