RE: Is there any hope for this engine?
There is no doubt that a loose plug in the tank can cause leaning out in flight.
When you fuel the model up and start the engine, fuel pressure is maintained because even though the plug is leaking, it's fuel that is leaking out slowly, because the air gap in the tank is at the top, away from the plug. Once the engine uses fuel or in your case, you go into a hover sequence, what was once a small flow of fuel seeping out of the plug becomes lots of air as the "air bubble" in the tank is now right where the plug is. Fuel pressure can then drop noticeably, leading to a leaning out condition.