Good point about bearings. With a gray oil residue it’s either burnt fuel or as Hydro states it could be from metal particles . Typically aluminum. This could be caused by the bearings being loose enough for the crank to rub the front housing or it could be a poor fit between the case and muffler.

The compression issue I doubt is a lack of compression. Remember the engine is inverted. Too much fuel in the cylinder will keep it from turning over when inverted. This is why I suggested to tune the engine with the airplane upside down. The situation gets much worse if while upright the fuel tank center is higher then the needle valve. The tank will naturally siphon into the carb and easily flood the engine. One of the reasons why I avoid inverted installations with a 2 stroke.