I would guess the liner is loose in the cylinder? Heat transfer, reduced by maybe 30-40%, crown temperature greatly increased, and hole melted in the piston.

Pull it off and have a look. Chinese cylinders on eBay, need a bit of clean up work, but should work fine.

So what's the prognosis for a holed piston? Requires complete dismantle, cleaning, honing, new piston etc., or can it be much less of a job?

sucks
I have same plug and piston displayed on top of my Marantz receiver, along with all my other blunders
something caused the mixture to get super hot/lean and to spray blast your plug and probably top of the rod with aluminum.  My theory is that it was more air / same fuel because it was a rocket leading up to this, vs less fuel/same air (not a rocket), but that's pure conjecture by a salesman.
Will be interesting to pull the head and cylinder, given how quickly that molten blob fell out, perhaps all you need is a hone and a piston/pin/bearing and rings?  Fingers crossed

My pick for your problem source is a too HOT heat range spark plug .
You would likely not had an issue if you hadn't been giving it FULL NOISE , and just ambling along .
I burned a hole in an AT3 I had borrowed back in the day . I was in the course of doing a plug chop , and wasn't aware
the bike had a HOT plug installed ( B7HS I think ) . I stripped the top off the motor , took the motor out of the frame ,
and washed out the crankcases . I did rebore it , but only because it was already rattly at that point .
In your case , a new piston / rings would suffice . In my case the bike ran well for years later .

Unfortunately it showers the alloy down the bottom.
Bit of a gamble flushing it out. I'd do it but not recommending it.
I'd turn it up on its handle bars & but the garden hose in there or pressure gun with petrol to get it to fall out & hope not get into the main bearing cage or slots in the conrod if the long slot type rod.
Also if there's a hole in the rod gudgeon eye it's right in the line of fire.
Tie the conrod with a bungy cord then spin it while spraying or washing.
If you fill it full of kerosene or diesel whatever in the upright position i think feel its more likely to find its way into the bearings.
I don't know, bit of luck involved & every case is different.
I had it happen on an RX125 i sent the boy down the road & i forgot it had a lawn mower plug in, & of course when he was out of ear shot he held it on full song--then walked home haha--that'll teach him--taught me a lesson too.
Reminds me also of having a hole welded by a local welding guru & lasted ok no problem. was a 4 cylinder 4 stroke piston in that case.

In my opinion, plug overheating does not look to be the cause from the picture of the plug.

Ok very true 'that' looking at the pic.
So does that leave lean jetting, air leak, or over advanced ignition.
Exhaust not enough back pressure--or too much. I've no idea & just guessing.
Be good if they had a computer to record things as it happens & stores it.
How bout a plug temp thingy--something i've never used.
Trouble now-is--you'd need to do the same thing again exactly to find out, or would the reading go up just because piston has reached melt down but not plug. Is it cyld head temp those things read clamped under the plug?.

perhaps disassembling engine is the best course of action.  Flushing out would make me worry about upping the price by ruining main bearings and perhaps big end,  that’s what I did on my dt360 with zero regrets  
 

Thanks guys.  The motor will come down.  If nothing else it gives me a chance to put one of my previous paranoid thoughts to bed..  I can run a setsquare around the crank to make sure it is not misaligned.

RT made a comment that reminded me of a one off odd occurence on the ride that I shrugged my shoulders at and carried on.

Getting ready for work now, so will elaborate when I get home again.

Pistons get holed, due to the temperature of the crown becoming higher than the melting point of the material the piston is made from.

The hottest part of the crown will always be the centre, and this is where the hole is going to appear.

On CDI motors, that have not had timing properly checked with a strobe light, there is a possibility that the timing being incorrect could cause a holed piston.

Jetting should always be carefully checked, if ethanol type fuels are being used, and it's not a great idea to rely on plug colour to determine the correct size jets, as the ethanol can result in plug colour checks not being accurate.

On engines which are in good condition, with no mechanical issues, even if timing and or jetting are quite a fair way out, running at wide throttle openings for a relatively long period of time, is something that is also very much a factor in temperatures high enough to hole a piston.