Lots of good thoughts here, thanks.
I took the oil pan plug out again and saw that although this tractor is painted blue, the plug washer has some red paint on the sides of it - makes sense as I understand these tracors were originally referred to as 'red bellies'. That would have to be where the red paint flakes came from. I removed the filter and was going to cut it up to see what was inside but decided not to bother at this point.
I washed of the oil residue in the drain pan with gas and then checked the remaining particles with a magnet; the fine stuff acts like iron filing so it is iron/steel. The ceramic-like particles crush with a screwdriver blade so they are probably not metal or lead; maybe they are bits of carbon but from where?
If it were a sliding liner, wouldn't I hear it tapping on the cylinder head on the up-stroke, with stethoscope on and around the head? Didn't hear anything.
Taking the head off would be easy but I think the front pulley has to be the first priority, straighten the pulley (hopefully), put it back, re-assemble and try again. Front end of loader frame has to be stripped first, then the tractor stuff. This is going to take a few days, as and when I get the time. We'll go from there.