Looks good! I consider that to be great shape!
What is the deal with the clutch? I know nothing about these big wheel, but something has me scratching my head.
I would try and get the most out of the engine without spending money, then strap the biggest rear sprocket I can get on it. But I like low-end grunt. Are you going to mess with sprockets at all? If you are looking for more top-end speed then that is the easiest way to do it. If you can get more power out of the engine in the lower RPM range and you stick a smaller sprocket on it you'll have about the same acceleration, but raise your top-speed considerably. That combined with the raised gov' you could easily kill yourself.
It is all a balancing act though. Enough gear to get your butt moving with as little as possible so you aren't RPM'ing the snot out of it.
Random thought for you is I know people who run go-karts, and stuff without clutches. If you just want a top-speed machine that is always a option... Just make a scooter-style kick stand so you can just push off when you get it started! This might be a bit much though... Haha.
Good luck to you sir! I love having projects like these! My Honda ATC was a nice simple project. I have a little mini bike someone left at my house I may fiddle with next. And I'm really wanting to try and stuff a Cheby 305SB I have laying around in a Deere lawn mower (riding tractor). Now THAT is killing yourself! Just be prepared to go FULL RETARD!
Will be watching! Can't wait to see what you do! I hope you do some fancy paint for the frame. I used to have a little 3HP mini bike when I was little that I did a nice flake paint on. It really made all the difference on the looks!