The 361/407 engines really like to be fully warmed up before putting them under load. If you put a cool engine under full load on the dyno, most of them with the original style head gasket will leak some between the block and head. They seal up when they get to operating temperature.
A new style head gasket may cure your problem with the seepage but running in a lower gear until up to operating temperature may make it less noticeable.
When the head is off it should be checked for straightness but I would not have it surfaced unless it needed it to be trued up. Most of the later diesel engines have a spec that only allows about .010 to be removed from the head surface. That doesn't necessarily mean that it won't work if more is removed, but that is the minimum head thickness that IH published.
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Today's Featured Article - Tractor Traction - by Chris Pratt. Our first bout with traction problems came when cultivatin with our Massey-Harris Pony. Up till then, this tractor had been running a corn grinder and pulling a trailer. It had new unfilled rear tires and no wheel weights. The garden was already sprouting when we hooked up the mid-mount shovel cultivators to the Pony. The seed bed was soft enough that the rear end would spin and slowly work its way to the downhill side of the gardens slight incline. From this, we learned our lesson sinc
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