Do I need to use new cylinder head gaskets when I reassemble for the compression test? The new ones I took out left some flakes on the heads and block that I had to scrape off.

When I drained the oil the second time it looked clean, so I saved to put back in when I reassemble the next time.

Yes, you should replace them, otherwise you will end up with issues down the road.

Its fixed!!! Finally.
I decided to trust the machinist that did the heads and bolt them back on using new "torque-to-yield" bolts and new gaskets.
Having done that I started to suspect the lower intake manifold gasket as the cause of coolant leaking into the cylinders. I took the original lower intake gasket to my local Napa guy (who actually went with to school with my son), and he noticed places where leaks were bleeding over to several intake ports. Then someone remember that there was a TSB about this engine.
I found TSB 03-01-010C for an engine coolant leak that specified a new torque setting and reengineered lower intake gasket which I bought directly from the Chevy dealer.
I bolted everything back together and fired it up. It pumped thick white smoke for about 3 minutes then ran smooth with no smoke at all.
We got a high idle problem later that same day but cleaning the IAC and unplugging then reconnecting the TPS solved that problem.
Thanks again for all you help....now back to surfing ...

thanks for updating the fix