Chris;
I havent done an air cooled tuneup in a while so you should listen 
to the experts over anything i say here but ...

i wouldnt assume your engine will run right with a given carb without
the 'correct' distributor. basically the carb has to provide the right
advance/retard vacuum for the appropriate load - you cant fix this by
varying the static timing.

are you sure the distributor drive gear is in the right place ?? I would check
the idiot book about this.