The thing is, his setup was running well before, now it isn't. So unless he's forgotten how to set the needle (which admittedly is possible given my own experience) I tend to think something has changed. To me a strong piece of evidence is that it started misbehaving after sitting around for a while.. corrosion.. bearings.. but it could be something else of course. Disassembly, cleaning and complete inspection should reveal the issue(s). Sure sounds like an air leak somewhere. Same symptoms from fuel foaming, so maybe a prop change put it out of balance. No matter, if there was grungy looking oil coming out, strip 'er down and check 'er out regardless would be my advice.
So rideon, what's the verdict after tear down?