It has a "pre-heater" system, which apparently is an electric heating element in the air intake, onto which drips diesel fuel from a special fuel supply line...... This engine has been started a total of 5 or 6 times since the rebuild, and only once (maybe twice) with ether, and I'm pretty confident that's not enough to cause lasting damage - especially since afterwards it ran perfectly, for a couple hours, with good power, no perceptible smoke, with water temp at a steady 185 degrees, and healthy oil pressure.
From my personal experience, the heads-up indicator of low compression in a Westerbeke, other than a compression test, is difficulty starting in cold weather. Once started, a low compression engine can behave just as you describe above..."ran perfectly, for a couple hours, with good power, no perceptible smoke, with water temp at a steady 185 degrees, and healthy oil pressure".
As to the cost of a rebuild, you can imagine what you wish, but my personal experience in having a 33HP Westerbeke rebuilt is the yard bill was $12,000, including pulling, shipping, rebuild vendor, and re-installing. If you take the opportunity to address other upgrades that are convenient with its out, mounts, belts, hoses, accessories, etc. and etc., then the bill really gets big. A rebuild of a 40HP engine would be north of this.
If you can do the labor yourself, then the parts might run only about half the cost. And how some rebuild vendor in Florida might reduce this cost materially sure escapes me, as the rebuild vendor cost was only $6,000 of the total..
But this is only my experience and hey, it's your money.