Slick, what type of welding are you suggesting be used for a cast iron bore?
I seized a piston way back in '67 and broke a chunk out of the cylinder base same as in this one. Took it to a welding shop, guy took one look and said "metal spraying". That is all I know of the technique except it is some sort of sintering. It is still living well in my barrels to this day (had the barrels off about 2 years ago).
As far as welding a crack, I am no welding expert, so I would confer with a specialty shop having TIG, MIG, etc.
It could probably be sleeved. But I think you would be better off sleeving, plating or boring your .040 cylinder if it is worn.
I am no fan of sleeving an air cooled engine. Even if a shop has the skill and technique to make it a success, there is a heat transfer penalty ..... the junction of the new liner with the casting will never transfer heat as readily as a cast in liner. Shops who have a good technique can get it good enough that most owners would never know their engines are running somewhat hotter. Less than good technique is an overheat waiting to happen.
Bores can be brought back to a std oversize by nickel plating. The thickness of the nickel plate can be whatever one wants to pay for ..... one can bring a worn 0.040 over bore back to 0.040, or 0.030, or all the way to std.
Nickel plating is expensive, but has the additional advantage of a hard wear resistant bore when completed. One will wear out many sets of rings before the bores need more attention.
I would not bore a worn 0.040 cylinder to 0.060 ..... I think that is pushing the limit of the cylinders strength. Sure, plenty of people have gotten away with 0.060 oversize, but where do you go from there? Junk the barrels is where. Better to retain the strength of the original liner, and bring it back to a good 0.040 over by nickel plate.
Slick