How about weak exhaust valve springs? Maybe they're floating a little at higher RPMs? And these engines are so loud at high RPMs anyway, it might be kind of hard to notice. It might also explain why the engine started ok the first time you fired it up. If there really had been bad piston/valve clearance issues, it could have got bound up when you first cranked it.Don't these engines use 2 springs (inner and outer) for the valves? Maybe you're missing some springs? Intake valve springs could be weak too, but they wouldn't be a problem in this case since the piston's low in the cylinder when the intake valve closes.
Just to say I don't think the valves were floating as the engine used to pull really well above 4000 rpm but was quite smokey.