The amount of clearance you are saying is a lot. 012" is enough to cause a significant vacuum leak. That would definitely cause it to run poorly, but perhaps not enough to cause the condition you describe. I suggest that you correct the obvious problems you have found and then re-start with basic engine diagnosis. Overtightening the manifold will only cause more problems than it solves. Take it to a machine shop and have it trued up.
An engine needs 3 things to run: 1) Compression 2) Spark - and at the right time. 3) Fuel/air mixture. Ideal is at 14:1
The condition you describe can be caused by many things: Ignition timing - could be far enough off to cause your problem. Valve timing - are you sure that the timing chain and sprockets are lined up correctly? This is another thing that can cause your problem. You can verify with a compression test. If valve timing is off, compression will be low.
I suggest that after correcting any OBVIOUS problems, you return to basic diagnostics. I would start with a compression test. Following that, I would check engine vacuum. Also check ignition timing. Engine vacuum should be at least 22-25" at idle. Ignition timing should be within a few degrees of spec. Most engines will run decent at 5 degrees BTDC.
Make a few basic tests like this and report back. There is still the possibility that your problem could be in the carb, but in order to prove it, all other aspects should be verified.
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Today's Featured Article - A 1937 John Deere Unstuck - by Gary Hickman. Here is my story of how I got the pistons out of a 1937 JD B that the engine had been stuck for about 14 years: About 12 years ago my Dad gave me one of the tractors I ran as I was growing up on our farm in central Nebraska. The engine on this tractor, a 1937 John Deere "B", had been stuck for 2 years before he gave it to me. This last spring (1999) I hauled the tractor to our 2 acre lot in St. Libory Nebraska where it joined my antique machinery collection, at that time a 1929 Caterpillar T
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