I did mark the rod before disassembling the engine. Since there were marks on the crank case noticeable when the engine was apart, this would indicate the rubbing was occurring before I took the engine apart.

I've got a shielded stainless bearing from Boca. Different from what now comes in the OS engines, but the same as they use on some other, more expensive engines (this recommendation came from some very experienced pattern pilots, one of which is an OS rep, to use the shielded bearing). The engine came with a shielded on the front and an open in the back. Apparently there is a short life span of OS rear bearings.

I called Hobby Services and they said to send it in, that there must have been a machining error and that the rod should not touch the crank case. I think this is what I'll do - it's under warranty and I'd rather not remove material from the con rod, and plus I just got a NEW VENUS 40 to play with while the VII is down for service