Pretty sure the timing on that machine has nothing to do with the fly wheel. Isn't the pulse generator under the "CDI" cover on the head and is ran off the Cam? I guess if the mechanical timing was set based on the fly wheel it could be way off though. I guess the real question is what is the buildup on the crank. Is it material from the flywheel, or is is grown into the crank. I know photos can make things look worse than they really are. Maybe there's a spec in the
service manual for the size there. I probably can't be too much of a help except maybe touch up the surfaces and dry fit the fly wheel on the crank and see if the bolting it on will make it hold via friction. If not you'll probably have to replace the flywheel and/or crank. There's atleast a hope that it will work w\o replacing them though. Depends how much it bothers you. Pretty sure worst case it would sheer the key again.
The other question is, how did the key sheer in the first place. Normally on like lawn mowers they are fairly hard to sheer. I've hit a stump before with a brigs and the key didn't sheer, but I don't think I've ever done that with a cast iron flywheel engine.
Personally I'd probably just use a flat punch where you can see where the key is and knock it out. Not sure what method you used, but seems like it worked. The opposite side of it should be in the flywheel, probably the same process, hit the edge of it and knock it out. Just careful of the steel surfaces.
I might have a 200es
parts engine, I can't recall for sure though. The output shaft would be shaft drive, but the rest should be more or less the same. Could look up honda part numbers to validate interchange fairly well too if it came down to it.