shimes
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Yes, the head shims act as a gasket, but since they're only a couple thousandths of an inch thick, they won't make up much variation in the mating surfaces of the head and the block. There are two methods you can try to fix this problem- The first- and easiest- is to use a small, I mean small, amount of copper RTV sealant on both sides of the shim( or on both surfaces of all shims if there are more than one) the second is to use some 400 grit wet-dry sandpaper and oil (AR oil works fine, or regular 1:1 motor oil) Lay the sandpaper on a flat, smooth surface, put a little oil on it and sand the bottom of the head a little to flatten the mating surface. You need to determine why the head-block joint was leaking in the first place- the most common cause is too high of a temp.
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Melted the pipe? Man, that mill's got issues- I suspect an air leak, which will cause a lean condition no matter how the needles are set. Oh well, sounds like you've got yourself a $175 paperweight. I suspected an airleak when you said your head gasket was leaking, but damn! 290-340 is way too high a temp to be running that motor, or any motor for that matter.