I have repaired the exact same failure on three 02'-03' Libertys that I have worked on in the past 10 months , this is pretty common failure on early 3.7s. #2 cylinder intake valve seat drops out of the head and holds the valve open , piston hits valve and destroys head , piston , or piston & cylinder wall . , I have been lucky on two of the repairs , no damage to the piston or cylinder walls , just had to replace two cylinder heads , got rebuilt heads from Odessa Cylinder Heads in Florida , both ran like new . On the I other had to pull the engine and replace or completely rebuild the engine , due to the #2 piston scoring cylinder wall after the valve seat and valve contacted the piston .
From the looks of your picks you will probably have a scored cylinder wall , but it might not be trashed and you might be able to hone that cylinder , and get buy with one new piston and ring set , a rebuilt head , and a gasket set .