They aren't really interchangeable the way you suggest. Even with the lower power engine and no fabric, I'd guess you would be able to break the 103 speed limit in a shallow, power-on descent. Adding fabric on a lower-power plane will almost certainly get you a higher cruise speed, but TANSTAAFL.
Fabric will help your top speed and cruise speed efficiency. You'll reduce tubing drag, but you'll trade it for some skin friction drag. It will certainly reduce your crosswind landing and taxi capabilities, and will make your AC more susceptible to damage from tears and so forth. Also, fabric adds weight and takes a lot of time to apply correctly. Adding fabric may change the flight characteristics quite a lot. Eventually, you'll have to replace it.
'Boring out cylinders,' on the other hand, gives you improved power through all flight regimes- takeoff, climb, cruise, and go-around situations. It may help top speed, but it won't help efficiency. The weight change will be minimal. It's less time-consuming than fabric covering, and probably wouldn't cost any less than an order of fabric, glue, tapes, and paint from Spruce, since you have to have an engine anyway. It will burn more fuel, but this isn't a cross-country machine, so that's not too important.
You're probably never going to get in trouble for going a little over the reg. speed from time to time- you probably won't be flying it in towered/Class B, or C airspace, and no one sits at a radar screen waiting to bust people flying ultralights at 60kts in Class E or G. But, speed isn't the point of these AC anyway. You'll enjoy the performance benefits and have a safer AC from the more powerful engine way more than you would from having covered tubing.
