My experience is that two strokes don't register as high of a compression ratio as a four stroke would. Part of the operation of a two stroke includes the "pipe", which when the RPM reaches the resonate frequency the pipe will reflect the air/fuel mix back into the cylinder, dramatically increasing the compression. At kicking speeds you don't get any of that, so it reads low.
65 PSI is a bit lower than I would expect, however.
If you are not sure of how many hours are on your top end you should consider rebuilding it. If you do it now you are looking at around $150 and a few hours of work. If you wait until it melts the piston it will be MUCH more.
There are Four things that I can think of that would cause it to lose power: Loss of spark, Fuel delivery, rings losing seal, and the power valve sticking.
Power valve and rings could result in a loss of power, but I wouldn't expect it to "cut out". If it is missing I would expect it to be either spark or fuel related. But let me get to that in a moment.
If is is a loss of power, even a sudden loss, it could be the power valve. This is a mechanism that closes down the exhaust port based on RPM. It is intended to give the bike more low RPM power. If the valve sticks, however, then you will lose power at whatever RPM range that the valve isn't adjusting to. And this can be dramatic.
The power valve is located right at the exhaust port, cross wise to the bike. There will be a linkage, probably on the right hand side, that connects down to the gear case. There is a cover over the linkage that you can remove and watch the power valve move as you rev the engine.
The power valve tends to get gunked up with the oil "splooge" so it is not unusual for it to start sticking. You can clean it by removing the linkage (there is a procedure for doing this without damaging the linkage, so get a manual!) and then removing the bolt that holds the two halves of the valve together. Each half comes out its respective side of the cylinder. There are a couple of O-rings and some seals that you should consider replacing as part of this process. Clean everything up, put it all back and you should be good to go. If you are familiar with how to do this it is a 30 minute job.
A power loss could also be due to worn rings. I would expect this to be temperature related, when the engine gets hot the rings may not seal well.
OK, now for the "cutting out" part. If the engine is "missing" then I would expect that it either is losing spark or fuel.
There are a number of issues with the loss of spark that is related to heat. Unfortunately, these can be a bitch to find as the offending part may work fine when you are able to actually test it. Trail and error may be the only choice.
Fuel problems can also cause this. Have you inspected the inside of your gas tank? The petcock will have a tube that extends upward into the tank and it should have a screen on it. That screen can get clogged and cause a fuel flow problem.
Rod