Mike,

I'm probably not completely understanding what is going on so dont mind me but it seems like a good idea to block off one side of the muffler then see if you can get it adjusted properly if you havent already done so. By running too rich with the needle valve bypassed you proved that you probably do have enough pressure with the muffler restricted, because as i am sure you know the needle valve just restricts the fuel flow to the engine. In other words if it runs ok without the needle valve you need more fuel pressure ie. more backpressure from the muffler.