Douglas:

OK. The changes to the sub-needle valve could explain the problem you've been having.

For now, there's no need to send the engine in to the factory or to a dealer.

Here's an excerpt from the YS CDI manual on the sub-needle valve:

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Sub-needle
The sub-needle is preset at the factory 1/4 turns opened from the full closed position.
Do not turn the sub-needle.
The sub-needle is not for rotate adjusting. Sub-needle works for injecting fuel into the crank case for cooling. If the sub-needle is full closed (turned clock wised), all of fuel will be injected into the engine cylinder. If the sub-needle is opened over 1/4 turns, engine power will be lowered

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The KEY is to only open the sub-needle valve 1/4 turn from the fully closed position. You likely opened it too much, which is why your engine quits at 5500 RPM. No wonder: All the fuel is going to cool the crankcase and not to power the prop :-).

So now do the following:

Close the sub-needle valve fully and then open it 1/4 turns from the fully closed position.
Get a decent battery (1400 Mah or more) for the ignition, JUST to be sure.
Open the main needle 1 1/2 turns or 1 1/4 (it does not matter too much till the engine runs)
Set the regulator FLUSH

Start the engine. It should run fine. After it's warmed up for 5-6 mins, try to max it out. If the engine 'misses' (i.e. acts like it is hesitating or misfiring at the top), that's a sign of the engine being too rich: lean in the high-speed needle.

After this, assuming all goes OK, you can set the regulator as discussed in TROY's blog. Be sure to read that blog, at http://www.patternflyer.com/troy/?p=92. This information is excellent.

Hopefully, all will go well this time around. Let us know!

atul