Basicly, the iron piston expands more than the steel cylinder. This can be caused by friction due to parts that do not yet fit (needs break-in), insufficient lubrication caused by not enough oil content in the fuel, or too lean a needle setting, or a combination of these things. Iron/Steel engines, if run too hot, can experience thermal runaway which can wear out an engine very quickly, or sometimes cause it to stop. Many (most?) Fox .35 users use at least half castor oil in their lube for added protection.

How much explanation do you need about care and feeding of a Fox .35? They are a little different from most engines in that they need more lube (25%-28%) is common. If it is an old one that has never been run you may need to give it an extensive break-in.

George

Edit: Oops, forgot about vibration. Fox .35's are shakers and need a very firm fuselage mount. Otherwise you can experience fuel foaming which causes a lean run. I think you mentioned that. I'd check there first. You might consider bench running to check out the engine.