I don't own an MDS engine, but just from reading your post, I would say you are woefully under propped with a 12.25x3.75. The .68 is a fairly large displacement so that sounds like the equivalent of running a 9-4 on a .46.
MDS .68 FS Pro Specifications
These are the specs straight from Horizon Hobby, take note of the 12x6 prop it recommends.
Bore:
25.4 mm
Stroke:
22 mm
Displacement:
.68 cu. in.
Weight w/o muffler:
18.24 oz.
Weight w/ muffler:
24.64 oz.
Cylinder:
ABC
Crank Thread:
5/16" x 24
Propeller:
12 x 6
RPM:
2,500 x 18,000
HP:
2.21
Fuel:
Nitro 10-15%