Yeah, O ring chains are definetly the way to go. Personally, if I had a chain driven bike, I'd put new high quality sprockets and an O ring chain on it. However, if you are on a tight budget, then a regular chain and the existing sprockets will be just fine. Be sure to buy a can of chain lube. My wife still hates that stuff. Her bike came with a chain. It now has a belt.
Your sprocket looks OK to me. I'd run that with a new regular chain.
These people: http://www.jirehcycles.com/ have a reputation for selling HD parts dirt cheap. They look to be just a tad over wholesale. My friends use them. Here's their metric site: http://www.jirehmetric.com/servlet/StoreFront Their web site leaves a lot to be desired, but they will give you a free CD catalog. here's a pocket chain breaker like I have: http://www.jirehmetric.com/servlet/Detail?no=1289 for $8. They have a Diamond chain starting at around $45 or in bulk for $9/ft. I'm getting a bit leary of "super cheap E36 M3 from FleaBay" myself. While it might be OK, there's a good chance it is crap. I know what a Diamond non-O ring chain is. Not good, but OK. A Tsubaki chain is better, in my experience. Either will probably last a long time on that 450CC bike with a little lube.
Sounds like one of your carb floats stuck open and the gas petcock was left on. Gas flows down the carb, floods it, flows into the head, down into the oil, fills crank case with gas. Be sure to turn the petcock off when you stop. Be sure to remember to turn it on next time. Everyone forgets occasionally.
