How much running time is on the engine? If it's an "old" one that's had a lot of time, it could have the piston/ring/liner fit worn to the point that compression's no good when the engine warms up. If it's had very little running time, then it needs to be broken in.

Initial running of that engine should be done at full-throttle set as rich as possible and still running. You may need to leave the battery connected to the glow plug to keep it going. Run it like that for 15-20 minutes before you attempt to lean the high speed mixture. Gradually lean the engine a bit at a time, and then richen it a bit again. Go rich-lean-rich-lean, gradually working the mixture leaner. You'll need a tachometer to accurately track your progress.

With a 16 x 8 propeller, you'll likely see RPM levels in the high 7,000's when the engine's broken in and run just rich of peak RPM.

Cold fuel coming out of the exhaust pipe means the cylinder is not firing. If it's burning hot, then you have that cylinder firing with a rich setting.

The engine should have no problems running with the fuel you're using and with good O.S. Type F glow plugs.

Set the rocker arms so that the gap is between 0.04 mm and 0.10 mm when that valve is off the cam.