I have to say I played with this idea a bit myself. Not so much because of the legal aspect as for the adventure of it. Depending on time, and how my current project goes, I may still go after it, just with a bit of a twist. Now that I already have an 18/1 in the works, the only way to go is up! Maybe a 36/2, or a 72/4? I'm already laying out a "Boxteroid" in my head, but whether or not it ever makes it to metal only time will tell.
When I was looking at doing what you are talking about, I was thinking more along the lines of building it up from raw steel. If you have the machinery (which it sounds like you do), the ability, and the time, skip the garbage Indian castings altogether, and do it right. The problem I had, was sourcing the plans (note to self, become really good friends with the g-man
). Without those, or an engine to work from, it was a no-go.
I don't think you honestly need to worry about picking up a parts kit and throwing one of these together for a home generator. If you try sneaking them into production on next year's VW line-up you may grab some attention, but a dude in his garage isn't even on the radar.
If your primary objective is to stay off the radar (though I doubt you really have anything to worry about), whether you buy a "full set" of parts, a compressor to convert, or just a set of castings to build from, it's all the same as far as risk. It wouldn't take a Sherlock Holmes to crack that case. The only way to stay off the radar, if you really felt you needed to, would be to build from scratch, or very near to it.
Now, if your primary objective is the cool factor and adventure of doing it yourself, you should be going full on from scratch anyway, AND, you should be taking lots of pictures to share, because if that's what you're about, I like your style, and want to see what you make!