lunched piston hummm, I've seen this before. is gap set correctly for the temperature you are running at?
Interesting that only one side of bore has worn the brunt of the damage (melted piston). mine (TF) use to do this; the port (through its lead up shape and port face shape) directed slightly more gas to one side of the port (and around the piston into the transfer

); so i assumed that this was heating up the piston unevenly?? i attempted to slightly reshaped the entire port length (though i can't confirm that it made any difference)..
I also noted that your port on that side of the bore looks rather square cut (might be the photo, though looking back it seems to show up in other older photos). is this putting uneven pressure on the ring? resulting in ring stress and hammering that you are seeing..
your piston, lunched

(not nicked) i bet you that sounded funny when it happened... I hope you didn't do to much damage to the roof of your exhaust port?
as for your retard curve, I would have thought that is wasn't retarding enough (resulting in extra heat), I would have though that 8-10 degrees would be a mark to aim for (as seen with MX's & RS125s systems). but in saying that I haven't had any of my bikes on a dyno for years to see how well my CDI works..
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