Blown Head Gasket and Cylinder Head Problem

I took off my cylinder heads this morning to replace a suspected blown gasket on the passenger side. These are my finding after removal:

1. No issues on the driver's side, i.e. the head gasket is in good shape with no signs of leakages, the cylinders and the spark plugs look clean.

2. Passenger side: cylinder 3 (the one closest to the firewall) found with water inside with signs of early corrosion, the gasket had signs of deterioration, the coolant ways on cylinder head was found in the condition as shown in the pictures.

I know that 3.8's are notorious for this problem and I was ready to replace the gasket. However, looking at the head I may need to either take them to a machine shop or get a new one

Appreciate any suggestions.

One more picture

Thanks for replying, wmburns.
Well, to give a little of background,Ii bought the car 5 years ago. Three years later, it blew the gasket for the first time (at least when I had it). I took it to a garage and got it repaired without going into details what the guy was doing and how. Now I realize I should have been more involved in it cause I well remember the gasket set I bought then han no new bolts and aspparently the old ones where used...
I have hardly run the car for the last year. When it one of the cylinders started to misfire 3-4 months ago, I changed all spark plugs and hasd the wires checked. It did not improve the situation. On my way back from the garage on that day i heard a knocking sound and saw clouds of smoke from the tailpipe. Luckily I was about to park it next to my house. I had no time to look at it until last weekend when I started working on it. So I can't say I ran it in this condition but it was parked with a headgasket blown for about 3 months.
I knew I have to do something about it when I saw the head this morning. Looking at the condition of the coolant ports I really doubt machining can help. How much can you machine away from the surface anyway?

Thank you guys all for your replies.

If anybody is interested, here is the latest:

It took me a while to find some time to continue the work. I took both heads to a machine shop. The passenger side could have been re-manufactured but I didn't like the price. They quoted something like $ 100 for welding, then it would take machining, cleaning the valves and changing the valve gaskets to get the head into a decent shape. So I scrapped it. I got a head from a '97 stang in the junk yard nearby. Got it checked in the machine shop, machined the mating surface and changed the valve gaskets. It cost me $ 60 for the head and another $ 40 for the work.

I had another look at the driver side head. It was not that good as I had thought initially. I got it welded in one or two places, machined and changed the valve gaskets.

Assembling all back was a bit more difficult that disassembling as I really forgot what bolts and nuts were supposed to go where

Anyway, I did it all by myself and finished it in 1.5 days. There was a slight issue with placing the lower intake manifold 'cause the passenger side head was a '97 and it uses smaller size bolts to fix the intake manifold, and 6 instead of 7 as it is on the '95 model. Otherwise the swap was straightforward.

I started the car last week-end. The issue I have with it now is coolant running out thru the weep hole in the water pump.

It may be an indication of the gasket failure on the pump or a complete failure of the water pump? What I noticed is that it leaks at lower RPMs and seems to be running OK with no leaks at higher RPMs.

I would appreciate any advice on this.

wmburns, Aeroman - thanks! Your advice really helped me with it.

Thermostat.
When changing the head gaskets, I thought it would be a good idea to have a look at the thermostat. I removed the bolts and detached the pipe and... found no thermostat inside The previous owner may have removed it for one reason or another. Anyway I bought a new one and put it there. From the test runs it looked it was working properly.

Water pump.
Well, the water pump is going to be out for certain now. It's a shame that I have not checked the pump before changing the gaskets - I could have done all in one go. Hey, where is my torque wrench?

Coolant.
Yep, the coolant may have added to the corrosion on the heads. I have not seen many mustang heads after 15 years of use though. The car used to lose coolant (thru water pump weep hole?) and one or two times I topped it up with tap water as an emergency.

Now I am pretty sure that the head gasket failure was triggered by overheating which in turn was caused by no thermostat and failing water pump.