Joe,
Interesting. I have one 35S and two 30S engines, and none are like that. It would appear that the hole was a pilot for one of the head bolt holes. Are yours oversize? Sometimes the original holes stripped and guys went oversize to repair. I even saw one that was "reworked to improve it," wherein a guy upsized all the screws--even though they were not stripped--because "they needed to be bigger...." I don't know how anyone could miss the depth by a country mile, but rework specialists can do some incredibly unamazing things.
I can't see any reason that a dab of JB Weld wouldn't be an acceptable tweak. Or, if you like port priming these older engines (some like to be really wet) leave it open and get one of those 1 oz. syringes with the pointy 90 angled tip. You also might consider something that I have done on mufflers when I move the pressure nipple. If I don't have a correct thread screw (usually a M3x.5) to plug the original hole, I take a 1/4" long piece of o-ring stock and thread it into the hole. Cutting a diagonal slice off of it to get it started helps. Needle nosed pliers will let you complete the threading to a tight force fit. Then I just slice off the outside piece flush. You could do the same with a smaller piece of stock. Slice off the inside and leave a tail on the outside. That way it will never fall into the exhaust port and damage anything. I have not had one of these fail yet.
On the tongue mufflers I am using, the muffler is threaded, so I had to do the same thing you mention, spotface the case for the screw head to seat against. No issues. In fact, I have one more engine still left to do. Thank you for reminding me to get it done!
Best wishes,
Dave