Tecumseh 5hp with low compression

First you ought to measure the compression of the engine. If you don't have a compression gauge, you can pick one up at Harbor Freight for about twenty bucks. Really handy if you have a shop, or even for use around the garage.
 
I'd begin with the head gasket as it is the easiest to check and replace compared with piston rings.
 
Often you can hear compressed air escaping from the opening in a blown head gasket. You might see oil that has escaped and run down the side. Try spraying around the head gasket with a soapy water solution and look for foaming.
 
Even if you don't find anything obvious, I would pull the head and replace the gasket, making sure the surface of both the block and head is very clean and flat. Once it's reassembled, check the pressure. It should be higher. 
 
Let me know how you make out once you've checked the head gasket.