A few opinions to share. Your mileage may vary.
A diesel conversion should work well. Davis does (or did) advise running-in the engine BEFORE conversion. Don't expect miracles from a worn out engine though.
A diesel can stand a pretty long extender tube to carry off crud without losing power.
If a black exhaust is not caused by over compression, perhaps it is not fullt broken-in. Otherwise, I would suspect something is wearing.
Breaking in a PAW or other iron/steel engine should consist of one two minute rich run followed by a series of peaked out two minute runs. Allow full cool down between runs.
You should run a diesel at peak, only richening enough to allow for prop unloading. Compression should only be high enough to make it run smoothly. You have to play around a bit because of the throttle.
An excellent online source for full procedure of break-in with thorough explanation of what it does to the engine can be found on the Canadian Nostalgia Combat site.
An excellent book for beginners is "Dr. Diesel's Diary" from and by Eric Clutton.
Hope this helps someone and does not offend anyone [&o] . As said, this is only ONE opinion.

George