A four stroke gets all it's oil from blow by. Some of the fuel blows by the ring on compression and ends up in the crank case. Some blows by the valves and ends up lubercating the rockers and valve stem and some runs down the push rods and gets the lifters and cam. Oil that is slung around inside the crank case lubes the bearings and con rod. All fourstrokes have a vent on the crankcase, some two. Excess oil and preasure is vented out. My Magnum 52 just dripps out of a single vent near the nose of the crank case. The Magnum 70 has a PCV setup with the vent going to the intake manifold. What exits the vent is sucked back into the intake an burnt off.

I suspect that what you saw is a buildup of oxidized oil. An engine couldn't run with a case full of grease. The maximum RPM would be in the low hundreds not over 10K, and it would likely blow the crank case apart. The local hobby shop guy knew what he was talking about. Clean everything up and if the bearings are dry, put a couple drops of castor oil on them. You can get a small bottle at most drug stores. All you want is enough so the engine isn't dry when it first starts up. Kind the same as you would do when rebuilding a car motor. As soon as it starts running fresh oil will be supplied, so all you want is just a drop or two on each bearing, including the cam bearings and a couple on the cam its self. If you took apart the top end and cleaned it, do the same for the rocker arms and pushrod ends. Don't make it sloppy with oil, just enough so it isn't running dry when it fisrt fires off.

Don