Ok... I misread the clearances last time. A gap of .007 IS fine. The marking of 1TDC IS really 3TDC. That little raised bump at 11 o'clock on the engine's rear vertical HAS TO be the timing mark as the engine is TDC when the timing mark lines up there on the flywheel.
It seems now that the problem is that the fuel injection timing is off... and THAT'S causing the noisy valves. While cranking the engine over by hand I noticed the fuel being delivered to each cylinder at TDC... not at 25 degrees before top dead center. I understand, in principle, about shiming the injection pump but if each shim equals 1.5 degrees... that would mean I need 16 or 17 shims to get the timing to where it needs to be. That seems like a lot of shimming.
Today I'm going to pull out the injector pump of both engines and 1) measure the thickness of each's shim and 2) see if I can figure out where the lobes of the fuel cam shaft area. If they're in different spots, I might have to figure out how to adjust the fuel cam itself.
I really hope I don't have to tear inside this engine.
Has anyone on here done this conversion before? Except for this hiccup, I really think I'm in the home stretch!