The question is can it hold a pressure/vac test. Also is it the bearings sliding around (slop in the bearings from being burned up) or is it the crank loose in the bearings, and without removing the seals it would be hard to tell.
Like someone said before, from the looks of all the fine powder the saw was probably run hot with a dull chain which could have taken out the seals (reason for pressure/vac test but I would have expected to seen damage to the piston if it was run lean) and I'm not sure if those saws had nylon cage bearings or not but could be the reason for the side play. From what I can see in the pic the piston looks clean so I'm guessing the saw was not straight gassed, so that wouldn't be the reason for the bearings going if it is actually the bearings that have the play in them.
I'm fixing a little 235 right now that a co-worker brought to me, bad primer bulb that I replaced, a ton of saw dust in the fuel tank, clogged fuel filter so I replaced that and the carb is clogged up as well so I ordered a china special replacement carb (if it was my saw I would have cleaned and rebuilt the OEM carb), bar is burned up, oil port was clogged with saw dust, and the chain was on backwards. There's no way I was going to invest much time into HIS saw since he obviously wasn't going to maintain it. He also has a Homelite and a Poulan that in in pretty much the same condition but I won't be working on them to get them back in running shape since I already know it would be futile.