I can't tell exactly what hole you are referring to, but:
If it's open to the atmosphere, yes, that's a problem. Engine will never run right, if at all. I have repaired two-stroke crankcase holes with JB-Weld before.
However, as silverfox pointed out, it may be an oil channel to the main bearings. You'll need to do a complete teardown in any case (pun), and when it's all apart the purpose of the hole will be obvious.
By the way, this engine looks like it had a horrible seizure. Piston skirt is shattered, the rings and ring-lands are galled to death. The brown areas on the piston look like it was run for a while with the rings partially seized; those sorts of stains usually come from the buring charge escaping past the rings, and into the case. Chances are the metal from the skirt made it into the crank & main bearings, seals etc. You've got a job on your hands.