Yes, I wish I could get better focus because I think it might be a v notched out of the valve. At op temp the I’m sure it would do way better at leak down. There blocky pattern is on the top of the wall and the smoother pattern is on piston face. This pic is at tdc. Coolant would only come in the cylinder if the heat gasket is blown, right?
FWIW: Bank 1 (BK1) is left side of engine. Your left, when seating in drive seat. BK1 cylinders numbers are 1,3,5 & 7 front to back. BK2 order is 2,4,6 & 8. Based on timing marks pictured. It was BK 2 cam, that was way out of time. Misfire DTC in BK 2, is what I expect to see.
Time the engine properly, install new set of spark plugs (or at least check gap is 1.2mm or less), and it will very likely run okay.
I'm thinking tensioner bolts have been loosening more and more over time. Resulting on less and less tension on belt. Belt chatter, increased the more it loosened. Tensioner, would also be chattering, stressing bolts. Timing belt, may have jumped out of time all at once after, or a little at a time. If little by little over time. Engine would run worst and worst over time.
If V notch in valve. I'd expect Leak-down would be markedly difference from other cylinders.
When engine run this far out of time. We can get a lot of unburnt fuel push through cylinder into CATs. Gunk, from intake ports, may also get washed into cylinders. This loads-up CATs. Yo may see a lot of smoke, if you do get running. As CATs burn off oil/fuel. Just let idle, to keep CAT temp low. Until well after it stops smoking. You may then get a CEL, with O2 DTC, and or CAT DTC once you drive at HWY speeds. I'd do a high RPM runs at this point, to cook off residue from O2's and CATs. Short 1 or 2 minutes runs at first, so not to get CATs to hot. Working up to 10 minutes runs at 4,500 PRM. This will usually take care of DTC.
Tip: Make sure you've good oil at correct level, and no vacuum leaks. Before high RPM HWY run.
To your question about coolant:
Blown head gasket, warped head, crack in head/block water passage. Are causes of coolant in cylinders. A sign coolant/water in cylinder, is steam cleaning (no carbon on piston top or head area). If a leak very minor and only when cold. We may not get steam cleaning. The Car Care Nut, has a video out on a 2UZ, with Blackstone reporting trace amounts of coolant in oil. He pressurized coolant system and studied cylinders/head, head gasket with borescope. No sign of leak or signs of steam cleaning???. He then pulled heads. No warpage of heads/block or signs of break in head gasket. He suspected, delamination of head gasket coating, since black coating flaked off. I asked, "if post R&R head gasket service. Oil sample was good or still signs of coolant" I've not seen a reply.
Piston top:
"If" this is a pocket of erosion in top surface of piston and not illusion. The piston would need replacing. As it will very likely fail in time. Replace timing belt, see if runs okay. Drive as you look for good used engine, may be good idea.
A side note: I know an INDY Toyota shop, that replaced a bent rod in Tundra 4.7L (USA made engine). He pulled oil pans, R&R only the one rod and piston from bottom end. Last report engine had another 100K on it. A time and parts (cost) saving method of replacing a piston.
Is this a pocket of erosion or illusion:
I'd get many camera angles on this to help make the call.
My first impression is: It is about 1mm to 2mm deep, 5mm to 10m wide erosion in top of piston.
I've a procedure to make sure I've torqued every bolt/nut. I paint them. No paint, torque wrench comes back out.
BTW: The bolts in the Aisin TKT-021 timing belt kit. Are water pump bolts. Those are good kits, I see from RockAuto. They may not be as strong as factory tensioner bolts, by should be good enough. Just make sure they're not to long.