Yes, the material is porous but since RRMBK proposed using it as a liner surrounded with non-porous, solid metal that might not matter very much.
One could argue it might let steam pass from one side of the piston to the other, but I don't think it would, certainly not to any significant rate. What steam does penetrate the sinter from one side would meet that coming the other way.
The OP doesn't state what type and size of engine he is proposing, but if something like a small mill-engine rather than a 4" -scale traction-engine or a sizeable locomotive… try it!
If it doesn't work the Oilite liner could always be replaced with one machined from bronze or gun-metal bar.