The biggest issue with a jet boat is the extreme temperature differential from the front two and rear two cylinder walls and the head temperature.
The actual finished bore size is a calculation based on the piston manufacturers recommendation and the expected running temperatures.
The warmer and less temperature differential you can achieve, the closer the tolerance can be to automotive spec. To a point. Unless you are running a closed cooling set up with a heat exchanger, never run the engine warmer than 160°F. Organic compounds (salt, calcium, lime, algae) start to cook at warmer temperatures and form on surfaces inside the cooling jackets, once this happens, they grab every particle that happens by. Virtually plugging up the cooling passages.
Do you know why the camshaft went flat?
Whether you decide to follow the machinists advice or not, just know that everything will have significant temperature differential and things will need room to grow.
Check the piston skirts for wall scuffing.
.0005" of additional wall and bearing clearance won't be the end of the world, even in a car.
Oil temperature and oil weight selection does become more important though.
Anybody who runs a hot rod engine full tilt while it's still cold is a fugging moron btw. (Yeah, I saw saw that).lol
Good luck bud, sorry for your frustration.
GT