So after talking to my dad last night, it's our car but right now it's his turn to have greasy hands, he had checked that the damper had not slipped and the timing was in fact correct. He did this some time before tearing into the motor. When the spark plugs were pulled this time they were heavily blackened due to some worn out valve guides seaping oil into the chamber. I'm sure this wouldn't help our cause, but this is a newer problem(last 500 miles) and its had the knock issue since it was built. In the past when i checked the plugs they were tan/brown with specks of black.

At this point it would seem there is no big "AAH HAA" problem with the motor like compression or cam timing. The biggest thing we've found is the head gasket is a bit bigger than the bore. We will get a snug head gasket, soften every edge we can find, get the coolest plugs, drop the thermostat, and fab up a cold air system. Am i missing anything? Once the motor is running we will verify fuel pressure, make sure the actual timing matches the computer and take it from there.

Hopefully all these tiny things will add up to a big change.

....also, i'm curious what some of these Virtual Dynos would rate this motor at for power. Anyone have access, or know of a good free one on the net?

Thanks for everyones help. You are all a wealth of information. I appreciate the posts.