Reeds look a bit frayed at the bottom right of the picture, but by no means the worst around. Hold the block up against the light and try and look through. Well sealed reeds will be just that; you won't see light passing through any gaps.
I have a higher resolution picture, and assure you there is no problems with the reeds.
Brief synopsis so far...
Reeds - VForce 3, good condition, reed to carb boot in good condition (surface cracks, none through)
Piston - Brand new, Wossner (obviously head and base gaskets changed at this point)
Powervalve - Tested open and shut manually, centrifugal mechanism works fine, and can easily see all ports opening through the exhaust port
CDI - Bypassed all bike's own electrics, also tested RM125 CDI
HT Coil - Brand new, tested new and old ones with multi-meter, seem fine, new plug cap, no resistor (tested with resistor also)
Spark plug - Tried 3, BR8ES
Stator coil - Old one tested fine, replaced with complete new electrex assembly, measures the same as the old one
Carb - PWK38 airstriker, pilot - 42, main - 180, needle - don't know, haven't touched it. - +16'c sea level (bike ran absolutely fine prior to this problem, suddenly just went half way through a ride)
Exhaust - tested without spanny, with spanny without silencer
LH Crank seal - appeared bone dry, replaced (no play in bearing)
RH Crank seal - no visible damage, replaced (no play in bearing)
Not tested new crank seals yet, awaiting gaskets.
Honestly cannot think of anything else to check, might just get some cheap 2 stroke from the petrol station and see if it runs up with that at all????