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OK, this is the third time I have typed out a reply, none of them posted….I guess I wasn’t logged in for my last attempt….
So, will be brief
The turbo jet has a relatively high idle RPM, so 1000-1250RPM is fine for idle speed. Trying to lower the RPM will usually result in that clunking and banging your described.
The original powerpacks for this engine had no rev limiters, but who knows what they may have been replaced with. Take pictures of any white ID numbers on the packs.
5800RPM is OK for WOT RPM, keep in mind your tach reading may be inaccurate.
I would stick with the 30:1 mix and premium fuel, this older high compression 140 will need all the help it can get to survive this harsh turbo jet application. The puffs of blue smoke were probably due to a misfiring cylinder coming back to life burning off all the gas/oil in that cylinder.
You have worked hard to revive this unit, but I would sell it off once it is working OK. Unfortunately, the Turbo Jet was not one of OMC’s better products.