I checked the timing for giggles (still have carb issues) and have seen these marks with the light....I figured I would have to do some cleaning to the pulley also...To verify cam timing position the #1 piston at TDC on compression (the cam lobes for #1 will be pointing away from each other - i.e. the intake pointing right and the exhaust pointing left.) There should be a pointer on the bottom of the water pump and marks on the crank pulley. 'P' for TDC and 'F' for ignition timing.
Being frugal myself, I was smart enough to get a compression tester with a quick release....to my fortune, it is the same release my air compressor uses....what PSI should I push through and what/where should I listen??However, being the frugal guy that I am (OK, cheap...) I don't like to waste a lot of money to make the diagnosis. Thus my eL-cheapo leak down tester should pinpoint the problem(s).
I looked into the cylinder and it seems that #2 is the only one that looks clean, but I am not able to see much of the valves, I haven't tried looking while the engine is turning....One other thing to try before tearing it apart is to peek into the #2 spark plug hole while turning the engine over. You will be able to get a glimpse of the valves as they open & close. If they don't - big problem! (bent/broken valves). If they do, see what the edges look like. Any chunks missing means burned valves (and probably seats, too).
I figured I would have to do it wet so I put the oil in first this time....didn't bother with a dry run...Redo the test with a cap full of oil in each cyl. If it comes up significantly it indicates rings. If it doesn't come up...indicates gasket or valves. I am wondering about #1 since it is way low compared to 3 and 4. If either 1 or 2 come up significantly with oil....consider pulling the motor and refreshening it all.