Fastbygaff,
My last bike was an '01 YZ 125 that I used for woods racing, set up for low to mid rpm riding. Before you get a bunch of people who jump on here and blame the big 38mm carb for "low end problems," I'm going to beat them to the punch by saying this bike has one of the most usable motors I've ridden, and coupled with the 6 speed tranny, it is a versatile machine. Mine was ultra-reliable with frequent oil and air filter changes. My exhaust was left stock to keep it quiet, and I repacked the silencer twice a year. You might want to hold off on the pipe change until you've tried some less expensive alternatives.
First, if you suspect you need a new top end, that may be the source of your low-end power issue. At the same time, you can take the opportunity to clean your carb and powervalve (a sticky or gooped up powervalve will kill your low end power.) Another $5 on silencer packing is a good investment if the previous owner spooged it up.
Second, this bike needs to be jetted correctly, but is not "fussy" regarding elevation or temperature once you get it there (within reason). I would highly recommend some Boyesen Power Reeds to give you crisper throttle response and a low end with a bit more bark. Your stock ones are probably tired by now. You'll have to change your main jet from a 460 to a 420, but the other carb settings remain stock. Scroll down and read here:
http://www.boyesen.com/article/articleview/60/1/4/ I got best results with a plug one range hotter than stock, but I live in the Great White North, so you might just want a fresh stock spec plug.
Third, the most cost-effective cure for a lazy low end on a 125 is to either go a couple of teeth more on the rear sprocket, or for a radical change, one tooth less on the front sprocket. I ran one tooth less on the front sprocket and threw on a quality O-ring chain. I needed to adjust it perhaps twice over the last year, and enjoyed the reduced chain maintenance. I think there may be an issue with the rear chain guide if you're trying to fit an O-ring if you go bigger on the rear sprocket...make some calls before you go that route.
Fourth, now that your gearing is lower, your next issue is wheel-spin. This bike has a motor. I ran a 9 oz Steahly flywheel which took nothing away from the engine's willingness to rev, but put the power down in a more tractable, usable way. It's an understatement to say the bike responds well to the flywheel weight. You might want a slightly lighter weight for MX versus my offroad use, but this was the one mod I couldn't live without for this particular bike.
Fifth, and most obvious, is to make sure your suspension is helping to put power to the ground and working with the motor. After my revalve I really enjoyed the increased traction, willingness to pull wheelies, and ability to power through smaller chop. It allowed the motor to do its job instead of fighting one another.
This may sound like some work, but you just bought a used 125, and they always require some love and cash to perform at peak. Just to save you misery, mine hated Yamalube in the gearbox. Oils are like religion around here, but my particular faith was Golden Spectro Clutch Saver in the box and Golden Spectro SX Synthetic in the gas.