High compression ratios pre-heat the fuel mix and so it burns faster. Fast burning is a good thing. But on a air-cooled 2-stroke the head gets real hot and the mix can get hotter than it should.
After ignition, it takes some time for the fuel to burn and produce maximum pressure.. There is an ideal piston position where you want peak cylinder pressure to occur... it is some degrees past TDC.
IF the mix burns too fast, peak cylinder pressure will occur too soon. Power output decreases because the piston is still too close to the TDC. It's kinda like having too much timing advance... You want to start the burning early but not too early.
And I'm not talking about pre-ignition.. that would come later if things get even hotter. You can lose lots of horsepower without any obvious indications of over heating.
So, you can raise the compression ratio but there is a definite point where you lose more than you gain Variables like the head's squish-band width, combustion chamber shape and spark plug location all factor in.. there's no way to tell how far you can go with compression ratio without you doing some experimenting.
As far as compression, 120 PSI is about normal. btw, that PSI reading has nothing to do with your compresion ratio. Compression ratio is the volumetric ratio of (piston displacement + combustion chamber volume) to (chamber volume). Some 2-stroke authorities may use a different formula for different reasons.
As to gasket thickness (thinness).. Aside from damage due to engine overheating, physical damage could come from too little piston-to-head clearance. Measure head /piston clearance at TDC . It's wise to leave about .5 - .8mm clearance because clearance tends to disappear when the engine heats up..
Bolt the head on with your choice of gaskets, put a piece of thin electrical solder wire into the plug hole. Extend it near the edge of the piston. Then move the piston around and past TDC. Pull out the crushed solder wire and measure how thick it is near it's end. Thats your piston to head clearance.