Better News!
I adjusted the lever down about 1-1.5 mm below the level of the casting, re-assembled the carb and started the engine again with some prime fuel in the carb throat. It now runs with the low speed jet open 3/4 turns. The high is around about the same. Running better than before and is responding to throttle ok. Sounds good at half throttle and more.
I conclude from this that the lever should be bent down a bit lower, is this correct?

edit:
I just phone the local Stihl agent. His opinion is that the lever should be set at the same height as the carb casting.
Also, exf3bguy suggests the same here:

http://www.rcgroups.com/forums/showp...&postcount=544

Which is puzzling, as I could not get it to run on that adjustment without having both needles almost closed and could not lean it out well.

I have this post from Zagnut in mind:
http://www.rcgroups.com/forums/showp...&postcount=548

Accordingly, I will start it up again a few times and maybe leave the metering lever adjustment where it is.