Congratulations on the nice find! Free is always good, especially when it is a runner. I suppose all the fuel had evaporated over the years, so you did not have to remove stale fuel. With some major maintenance, cleaning the fuel tank, replacing the fuel line and valve/strainer, and adding an in-line filter could be added to the list. Changing the hydro fluid and filter is a good investment.
You should not worry about the KT17 series I any more than you would other 27-30 year old KT17 series II, Onan, Briggs, etc. engines. Early series I engines had a rod design or material problem and the rods failed in short order. Kohler corrected this problem (even before introducing the series II engine), and I like to think of the improved engines as "series Ia". Many of these are still earning their keep.
With embarrassing failure of the early KT17 series I engines, some dealers (Deere, Cub, Wheel Horse, etc) were only too happy to place some blame on the consumer with the "mowing on a hill side explanation". I regard this often-repeated caution as an urban legend for the KT17 series I (Ia) engine. The KT17 series I and early series II engines have the same oil pump and oil pick-up system and both are rated for operation up to a 30 degree incline. From the oil pump oil is sprayed at low pressure from the spinning (approx 1750 rpm) camshaft in a series I engine, or ported at higher pressure to the crankshaft in a series II engine. Once the oil is picked up from the sump, gravity (tractor incline) is no longer a factor for lubrication for either engine design. As Timothy describes, many KT17 series I owners (myself included) mow reasonably inclined yards with no problems. It is wise to keep the oil sump topped-off in any engine.