I think you may be on the right track, valves. I had issues with a 20 hp kohler command. It has hydraulic lifters so clearance wasn't my problem. I did a compression test, passed. Did leak-down test, passed. I was told by local shop that my engine has head gasket and Valve problems. So I finally pulled the head off the cylinder that had a problem. Lapped in the valves and problem solved. So I concluded that compression and leak-down didn't really find my problem.
It sounds to me like you may have a flat head engine. If you have valve seat recession, you will have valve clearance problems. That will usually show up after engine is warm. If intake valve doesn't close all the way, it will push air backwards through carb resulting in too much fuel.
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Today's Featured Article - Show Coverage: Godfrey, Illinois Country Days - by Cindy Ladage. Except for last fourth of July's Old Gold show in Springfield, Illinois, I don't remember when it was so hot. Nevertheless, the heat didn't keep vendors and visitors alike from enjoying the third annual Country Day's Event. Jane Elliott said the event was originally a one man show. "Barry Seiler, owner of Country Town Farm Supply store used to invite people up to the Johne Deere store. He would give hats and a free meal for everyone that brings a tractor." Elliott said while this
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