If the chain is beat-up, I'd say the first step would be to see what damaged the chain - I had something flick up off the road and bend one of my front rotors once....although it could be that your gearbox siezed and the sprockets damaged the chain

I'd check out both options first; take off the front sprocket cover and look for foriegn ogjects.
It'd pay for someone with more knowledge to chime in now that I have the ball rolling

Sorry I can't offer more help....
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Ride it like you stole it.
From Randy's pages:
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...Newbie riders should simply skip the TL and go straight to the morgue.
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Mods done: 2 Bros mufflers;homemade TRE;Airbox mod;'97 temp sensor mod;Iridium plugs;TLR bellmouths;OEM-style smoked screen;HH sintered pads front and rear;Metal Gear rotors with gold carriers;removed OEM mirrors and mounts;bar-end mirror with cut down stock weight as spacer; chopped rear fender; DID gold x-ring heavy duty chain;2 up on rear sprocket;damper mount mod for easy tank lifting;forks up-in-the-triples 7.5mm;Riflemans clear clutch cover and 1/5 throttle insert;Barnett clutch springs;Mini CF look indicators front; mini chrome LED's rear with resister;2.5wt oil in stock damper;PC II;Bitubo rear shock;Forks - Race Tech internals with 1kg/mm springs and Gold valves;braided front brake line;billet sprocket cover;charging mod;plus mod;
To do:TLR MC;black; paintTLR swingarm;chequer plate undertail;6 pot brakes;inline fuel filter;hotgrips