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Good morning.
As long as the metal is not raised around the out side of the top keyway , a tight key in the bottom and a key in the top albeit loose should be OK IMHO. The key is just for proper flywheel alignment . It’s the taper fit and the proper flywheel nut torque that hold it all together.
You can check the taper fit and lap it in if needed.
I would guess the rod shimming is not original. I’ve run into the same thing on other make motors.
I’ve polished out light to medium scoring on rod journals in the past and closed up the rod and reamed them to fit. You could also try and find a donor motor with a decent powerhead.
Not sure on the crankcase "drain". If you spray some carb cleaner in you may be able to see where it comes out. It might be it recirculates back into the crankcade.
Hope this helps some.