So after cleaning and assembling the engine again last night, I just tried it out and I think there are two issues.

1. The black stuff comes from the muffler. Seems like the two muffler halves rubs against each other and this black sooth oozes out from that joint as well. I did remove the muffler baffle inside to eliminate this as a source.

2. When the engine was disassembled I couldn't see any back and forth play in the rear bearing, however, now that I've assembled it again, there seems to be more of a up-down movement of the shaft. Not much, 2/10 of a mm, however there is a clear movement when I grab the propeller and rock it up-down. I can also hear and feel a !QUOT!click!QUOT! when doing this. Does this point toward the front bearing being worn out?

Thanks,

Tycho