RE: what am I doing wrong...
Do you have the head gasket in place? It has to have one to seal properly and make sure that it is not damaged. I also recomend using a small amount of silicone sealer on the shim just to help with the sealing and while you are messing around with the sealer, seal up the carb and backplate.
I have done the .18 conversion and it works just fine. I ran aproximatley 7 gallons of fuel through the stock motor with no after run procedures so it was definetly worn out.
rolland