Spun bearing. The lining on the ID looks good, but the bearing has been spinning in the rod big end bore. Probably insufficient crush on the bearing. Even if the rod bolts were torqued correctly, if there is not enough bearing crush, the bearings will spin. Since the big end of the rod is now grooved, it probably can't be reconditioned to be good. And the picture of the rod looks like it is a fracture-split type, which probably can't be reconditioned.
How much do you want to dig into this thing? Maybe you could just go buy a remanufactured engine with a warranty and swap it in. I have a feeling the more you dig into this one, the more you'll find is wrong with it.