Hey guys I found the problem. I took the cylinder head off the engine and saw there was no gasket between the block and the head. I know enough about engines to know there should be one. To be on the correct side of things I double checked by looking at the engine breakdown in the O.S. manual and sure enough there is suppose to be a gasket. So I called O.S. explained the problem and they are sending me a gasket by mail.
How awsome it is to have a great customer service that Tower,GB, and Hobbico all have. This is the second time they have helped me and they have been great!!!!