I have two Gassers, but Im helping a friend with his CR 125
 

He has leakage around a couple of the cylinder head studs. It also looks like the leakage is along the mating surface too.

We removed the head and applied some machinist dye to the head. After rubbing it on a sheet of #600 sand paper on a flat surface, the blue dye along the outer edge was rubbed off.

This indicates TO ME that the outer surface was raised a little. After the first couple light rubs on the sand paper only the front and rear of the heads mating surface came clean. Upon subsequent "sanding/rubbing" the left and right sides bluing was also removed.

If these 1989 Honda CR 125R heads come from the factory absolutely flat, then this indicates some warpage is present, and continuing this "sanding" process should bring it back to its correct flatness.
If, however, these heads are engineered with a slight taper (to allow the head to flex when torqued (or some other engeneering reason)), then it would be a problem to continue to remove material from this outer edge.

HERES MY QUESTION...
Does anyone know FOR SURE if the 1989 HONDA CR125R head is supposed to be absolutely flat or slightly tapered where it meets the cylinder ?

As far as I know all two-stroke head/cyl mating surfaces should be perfectly flat. You can continue lapping the head and cyl surfaces until this is acheived. I have a large glass plate, and use #400 paper with some WD40 in figure "8" motion. I did this to a GG125 that had overheated and its been fine for years now.

Apple to Oranges.....

The Honda CR 125 heads to cylinder use a head gasket (not like a gasgas that uses a o-ring seal). The gasgas cylinder to head, seals with 0-rings, not a head gasket.

O-ring head sealing surfaces are very forgiving to small amounts of warpage. It is very possable for a Honda CR 125 to leak do to; both a bad cylinder head surface to be distorted (mostly do to over torquing the head nuts, or over heating from coolent problems).

I have found that people over torque head nuts on these types of engines (thinking a top end job is a cake-walk and way tighting is good). and not only that, but the top of these small cylinders can be distorted too (it could be the top of the cylinder and cast liner surfaces are distorted).

Just remember; 16 to 18 foot pounds of torque is all it takes to seal any 8 mm head stud.

Ron