Wow.
I'm no expert, but even though that gouge is scary deep, it looks like its below the area of the cylinder that is swept by the rings. If thats the only 'abnormal' wear, i.e. the rest of the cylider walls are ok, I would think the block is ok.
I'm pretty sure you need some new rods, tho. <img src="/forums/images/graemlins/smile.gif" alt="" />
Any machinist woudl give you a quick opinion and tell you if its salvageable.

Good luck with it!

B

88 Trooper, 2.6 5spd
89 Trooper RS
92 Montero