Wayne, I checked this crankcase hole and it is aligned properly with the brown rubber gasket like thing...probably the insulator. And yes the air flow path is clear. From what I could understand, air comes out and hits the insulator and then goes around in a U shaped shaped channel into the carb. As it enters the carb it hits a small black lip on the diaphragm....etc etc... The entire air path is clear.

Checked the spark plug too. It is sparking when I flick the prop. Could something be wrong in the crankcase? During the break in time, after the engine ran for a few minutes, I did try to advance throttle to above 50%...could this have damaged any internal piston parts etc? Sounds unlikely, but then anything is possible.