Troublesome MDS engines like an idle bar plug. OS #8 plugs are great but the MDS needs the idle bar. The MDS 40 likes to rev so use a 9x6 rather than the usual 10x6 at least while attempting to get it to run dependably.

This engine is known to be troublesome and difficult. If you are new to engines put it on the back of your shelf and go buy one of the other engines. You can go back to the MDS at a later date when you have more experience and time to fool with it. Some of these MDSs come out of the factory perfect and others can cause hair pulling. If as you posted you removed the cylinder head to verify there was no excess of fuel there and the piston was moving you most likely should give up on it now and save yourself much aggravation.

If, and only if, you have good talents with engines look up the MDS threads about what others have done. There is a very misleading page over at JustEngines stating the carb is the problem and spitting from the carb tends to make people think it is the carb but those of us who have gotten a bad engine to run well know better. Also you will note that one of the guys substituted a known good Supertiger carb and the symptoms remained the same.
http://www.rcuniverse.com/forum/m_20..._1/key_/tm.htm
http://www.rcuniverse.com/forum/m_23..._1/key_/tm.htm

Welcome to the forum.