I would say more than likely it's a blown gasket. Make sure you replace it with a Kohler gasket. The fire ring on the Kohler head gasket is far superior to the aftermarket ones.
The manuals for the K321 are free from Kohler. It's easier to find them at wfmfiles.com.
You can deck thehead with sandpaper and a very flat surface, like a piece of glass. Don't worry about taking too much off. The head will still work with no inside ridge...don't go that far.
I use a thick piece of glass and 400 grit wet/dry paper. Spray some soapy water on the paper and use circular motion to make the head flat again. After the first few passes, you can see how much is needed. Sometimes takes a bit to get it flat again.
Thanks KennyP for the info. I know I have the sandpaper but I'll have to check if I have a piece of glass that will work. I just ordered an OEM head gasket for it that should be here sometime next week.
Cadman, If you have a local store that makes marble countertops, you may be able to get a piece of "scrap" marble, granite, or any ground stone top. The circular motion Kenny mentioned, or a figure 8 motion, is NECESSARY so that you end up with a flat surface. A forward/back motion will result in removing material from the from & back and can make a bad situation worse!
After sanding, you should see all the areas of the head that were sanded. Remove paper from stone, wipe 100% clean, and place head back of stone. Check all around with a feeler gauge... the spec is flat within .003", so a .003" feeler should not go under the head in any place. Next, put some rags inside the bore, clean top of block, and give block a light stoning, or filing if that's all you've got. Place head on block and check again with feeler. Just cuz, you may want to use smaller feelers just to determine what the max opening is. Once this is done, clean thoroughly, and you're ready for your new head gasket. Kohler manual states torque head bolts to 10 ft-lb in sequence, then 20, then final 25-30 ft-lb and go around again at max torque. In case you're unaware of this, after starting engine, run for 20 minutes or so, shut down and allow to cool. Retorque heads after cooling.
As a side note/question, do you have the Kohler Service Manual? If not it's available at: WFMFiles.com. Scroll down and download Service Manual. Also some good Sunstrand info there too! Bob