Jon, I am sorry I haven't gotten back to you sooner. I had a contest this weekend and I was preparing for it.
From everything you did, the engine should start. However, since it seems to want to start when you elevate the tank above the engine, it seems that you are having a fuel feed problem. The gravity of the fuel in the tank wants to feed the carb, but not enough for the engine to start. Check the muffler pressure fitting and make sure it's not plugged. If the muffler pressure is not pressurizing the tank, it won't feed the carb.
Put your finger over the exhaust tube on the muffler and try and start the engine. You should see the fuel run through the fuel line to the carb. If it doesn't, your pressure fitting is plugged.
If you are getting muffler pressure to the tank, then there is another problem.
I know this may sound like a stupid question, but when you reassembled the engine, did you make sure you aligned the exhaust ports in the sleeve with the exhaust outlet? Most engines have a pin that will only let the sleeve seat when properly aligned. Some of the cheaply made Chinese engines (used by Redcat) don't have these pins.
Another problem can be a leaking rear gasket or leaking front bearing. The piston pressurizes the crank case and forces fuel up the intake ports to the cylinder. If there is a leak, the crank case won't be pressurized enough to feed the cylinder with fuel. Yes some fuel will make it to the cylinder, but not enough to run.
If the rubber o-ring is missing from the carb neck, it will cause it to run erratically also.
If there is little or no cylinder/piston compression, the engine won't start either. That engine should have a squeeze area when the piston reaches the top of the cylinder it gets really hard to push the piston through the sleeve. if the piston wants to just slide through the sleeve , the motor is worn out.
If the engine started for ten seconds when you first got it, there is a chance the previous owner put grease around the piston to increase the compression just long enough to get it to start. Once the grease was dissolved and burned out of the cylinder, the engine died and failed to restart.
Take the engine apart and check the clearance of the piston at the top of the sleeve and see if it gets tight. It should get so tight that the piston won't want to go all the way through and come out of the top of the sleeve. If it doesn't get tight, put some axle grease around the piston and put it back together and then see if it will start. If it starts, throw the engine away and get a new one. That engine is toast. Trying to get a piston and sleeve for that engine will cost as much as a new engine.