Some observations from afar while viewing your photo and the discussion.
It does not appear to be cracked. I know, loaded statement. Inspect the condition of the threads in the head. Sometimes the installation of oversize studs will solve the loose problem. They are available. If the threads in the head are too far gone, the hole can have a heli-coil installed which will salvage the cylinder. The surface doesn't look that bad. Is the flange on the exhaust stack flat? The tab tends to bend towards the cylinder which prevents the sealing surface from making a good seal. This is common on two stud Lycomings. Four stud Continentals not so much. Heat the tab/flange with a torch and tap it back. Sand it flat on a surface plate. Does the exhaust stack flange fit flat to the cylinder without the gasket in place? If it is cockeyed the gasket can not get equal pressure for a good seal.
If you decide to resurface the exhaust port or rework the stack, be sure to "dry" fit the entire exhaust assembly, without the gaskets, to the engine to ensure that all of the ports still line up without any "preload" anywhere. If there is any misalignment there can be some cracking/breakage of the exhaust pipes and flange joints. Also, depending on the type of exhaust/engine combination, if one cylinder's port is machined to clean up the surface it may induce a preload on the stack assembly. This can also cause a failure. Any possible failures can occur in less than an hours running time. I've seen it happen in one trip around the traffic pattern after changing an engine. One cylinder on the new engine had the exhaust port machined smooth. This caused tension on the stack so that it broke completely around at the flange. After repairing the stack, the use of double gaskets on that cylinder fixed the problem.
Lycoming uses a steel flat washer, star washer and flat nut to hold the stack in place. These tend to rust in place from the heat. Also the exposed stud threads tend to grow hard rust ruining the thread. This causes the studs to unscrew from the cylinder when you try to take the nuts off. I have been using long brass nuts to prevent this from happening. So far, no trouble.
